IAS 2 Inventory dictates that accounting treatment of inventory. According IAS 2:

Inventory should be recognized at cost.

Inventory should be test for impairment before disclosing it into financial statements.

Impairment loss should be immediately recognized in profit & loss statement.

Inventory will be impaired if;

NRV (Net realisable value) is lower than cost.


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  1. NRV is the value that could be realised through making a sale after deducting all expenses necessary to make a sale.
  2. Market selling price is the price at which inventory could be sold in arm’s length transaction.
  3. Selling expense is expense need to sell goods to customer such as delivery cost, salesperson commission etc.
  4. Rectification cost is cost incurred in bringing inventory to saleable condition such as repairing, repacking, refurnishing etc.

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