Sec. 1. Scope.This Chapter covers thedefinition, recognition, measurement, cost formulas to be used and related disclosure requirement in accordance with PPSAS 12 on Inventories. It includesspecific guidelines and procedures on acquisition,issue, disposal and impairment of inventory and defines the benchmark for those tangible items not enough to be considered as Property, Plant and Equipment (PPE).
Sec. 2. Definition of Terms. For the purpose of this Manual, the terms used as stated below shall be construed to mean as follows: (par. 9, IPSAS 12)
a. Current Replacement Cost - isthe cost the entity would incur to acquire the asset on the reporting date. (par. 9, IPSAS 12)
1. In the form of materials or supplies to be consumed in the production process (examples: materials and supplies awaiting use in the production process);
d. Net Realizable Value-is the estimated selling price in the ordinary course of operations, less the estimated costs of completion and the estimated costs necessary to make the sale, exchange, or distribution. It is the net amount that anentity expects to realize from the sale of inventory in the ordinary course of operations. (pars. 9 & 10, IPSAS 12)
Sec. 3. Cost of Inventories. The cost of inventories shall comprise all costs of purchase, costs of conversion (materials, labor and overhead) and other costs incurred in bringing the inventories to their present location and condition, excluding abnormal amounts of wasted materials, labor, other production and selling costs, administrative overheads that do not contribute to bringing inventories to their present location and condition. Trade discounts, rebates, and other similar items are deducted in determining the costs of purchase. (pars. 18, 19&25, IPSAS 12)
a. At the lower of cost and net realizable value. However, where inventories are acquired through a non-exchange transaction, their cost shall be measured at their fair value as at the date of acquisition;(pars. 15-16, IPSAS 12)