Financial Statements: Identification, Characteristics, and Inventory Accounting

Identification of Financial Statements

The financial statements shall be clearly identified and distinguished from any other information published in the same document.

Characteristics of Financial Statements

• Accuracy: Displaying information in a clear, precise, and true manner.
• Opportunity: Must be submitted on time.
• Relevance: Only present information unique to the company's operations.
• Integrity: The information submitted must be complete and not incomplete or unreliable.
• Frequency: Financial statements should be made with a fixed periodicity.

Notes to Financial Statements

Clarifications or explanations of events or situations, quantifiable or not, are an integral part of every financial statement. They must be read together for correct interpretation. Notes include narrative descriptions or detailed analyses of the amounts shown in the financial statements.

International Accounting Standard No. 2 (IAS 2): Inventories

Aim

The objective of this Standard is to prescribe the accounting treatment of inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and deferred until the related revenue is recognized.

Inventories are assets:

1. Held for sale in the normal course of operation
2. In the manufacturing process towards this sale
3. In the form of materials or supplies to be consumed in the production process or service delivery

Net realizable value is the estimated selling price of an asset in the normal course of operation, less the estimated costs to complete its production and carry out the sale.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Valuation of Inventories

Inventories are valued at the lesser of cost or net realizable value.

Cost of Inventories

The cost of inventories comprises all costs of acquisition and processing and other costs incurred to give them their present location and condition.

Costs of Acquisition

The cost of acquisition of inventories comprises the purchase price, import duties, and other taxes (which are not subsequently recoverable from tax authorities), transport, storage, and other costs directly attributable to the acquisition of goods, materials, or services. Trade discounts, rebates, and other similar items are deducted in determining the cost.