Inventories

The standards, which have been set in bold type should be read in the context of the background material and implementation guidance in this Standard, and in the context of the Foreword to MASB Standards. MASB Standards are not intended to apply to immaterial items.

Scope

1. This Standard should be applied in financial statements prepared in the context of the historical cost system in accounting for inventories other than:

   1. work in progress arising under construction contracts, including directly related service contracts (see MASB 7, Construction Contracts);

   2. financial instruments; and

   3. producers’ inventories of livestock, agricultural and forest products, and mineral ores to the extent that they are measured at net realisable value in accordance with well established practices in certain industries.

2. Exempt enterprises need not comply with paragraphs 37(d), 37(e), 39 and 40 of this Standard.

3. This Standard supersedes International Accounting Standard IAS 2, Valuation and Presentation of Inventories in the Context of the Historical Cost System and International Accounting Standard IAS 2 (revised), Inventories, issued by the professional accountancy bodies in 1978 and 1997 respectively.

4. The inventories referred to in paragraph 1(c) are measured at net realisable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or mineral ores have been extracted and sale is assured under a forward contract or a government guarantee, or when a homogenous market exists and there is a negligible risk of failure to sell. These inventories are excluded from the scope of this Standard.

Definitions

1. The following terms are used in this Standard with the meanings specified:

   Inventories are assets:

   1. held for sale in the ordinary course of business;

   2. in the process of production for such sale; or

   3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

   Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

2. Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials and supplies awaiting use in the production process. In the case of a service provider, inventories include the costs of the service, as described in paragraph 19, for which the enterprise has not yet recognised the related revenue (see MASB 9, Revenue).

3. An exempt enterprise is defined as an enterprise that:

   1. does not have public accountability;

   2. at the balance sheet date, all of its owners are members of the enterprise's governing body; and

   3. is not large.

4. Public accountability is deemed to exist where it is likely that there may be sufficient stakeholders who base their resource allocation decisions upon their knowledge of the enterprise. The stakeholders include resource providers (including employees); recipients of goods and services: and parties performing review or oversight functions. Notwithstanding the above, an enterprise has public accountability for the purposes of this Standard if the enterprise has the coercive power to obtain public funds by method of imposing taxes, rates, tolls, levies or the like.

5. Where every owner of an enterprise is also a member of the enterprise's governing body, there is an absence of accountability relationships between the governing body and the owners. Separation between owners and the governing body is thus another surrogate to indicate the existence of dependent users. Where the owner is not part of the body that makes the operational and financial decisions relating to the enterprise, he may not be privy to certain information that is considered necessary to make efficient resource allocation decisions. Hence, it is reasonable to expect that dependent users exist in such circumstances. Similarly, if the parent or ultimate controlling enterprise has the coercive power to tax, rate or levy to obtain public funds, the enterprise is not permitted to use the lack of separation between the owners and the governing body as a basis for qualifying as an exempt enterprise.

6. For the purpose of applying this Standard, an enterprise is large if it exceeds any two of the following:

   1. an annual gross revenue of RM 10 million;

   2. gross assets of RM 5 million at the end of the financial year: and

   3. an average of 50 employees for the financial year.

   The criteria for size will be reviewed from time to time to reflect changes in the business environment.

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