THE DRAWBACKS OF IFRS: INVENTORY VALUATION

Abstract

This article is the next in the cycle of articles about the drawbacks of the International Financial Reporting Standards (IFRS) which was started in the previous issue of the journal. This cycle aims at exchanging opinions and discussing the possible ways to improve IFRS. The article discusses further the drawbacks of IAS 2 “Inventories” focusing this time on the recommendations of IAS 2 on measuring inventories in particular on their cost. Theauthors criticize the part of the standard which restricts the inclusion of administrative overheads in the cost of inventories, draw attention to the fact that circumstances where borrowing costs are included in the costs of inventories are not defined clearly and that there is certain inconsistency between IAS 2 “Inventories” and IAS 23 “Borrowing Costs”. The article also considers some other problems including the problem of singling out a financing element when inventories are purchased on installment basis.