Username:
Password:
Forgot Password?

AASB 102 - Inventories
Print this Article Print this Article
Email this Article

Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
IFRIC Rejections and Guidance
  1. September 2005 - Inventory Rebates and Settlement Discounts 
  2. November 2004 - Discounts and Rebates 
  3. March 2004 - Consumption of Inventories by a service organisation 
  4. August 2002 - Cash Discounts
1. September 2005 - Inventory Rebates and Settlement Discounts 
 
Issue:  
 
The Issue Accounting Standard AASB 102 Inventories (paragraph 11) refers to deducting trade discounts, rebates and similar items from the costs of inventory purchased.  
 
Should all rebates be deducted from the cost of inventories or can some rebates be recognised as reductions in expenses or directly as revenue? For example, some volume rebates may be regarded as a contribution toward qualifying advertising costs incurred under a co-operative advertising arrangement, suggesting that they should be deducted from advertising expenses. Should volume rebates be recognised only once the target volume is reached or proportionately where achievement of the target volume is assessed as probable?  
 
Should settlement discounts received by an entity when purchasing inventory be included (i.e. deducted) in determining the cost of the inventory or recognised instead as revenue, such as interest revenue? 
 
IFRIC Decision:  
 
An IFRIC Interpretation is not required. IFRIC provided some guidance on the above issues:  
 
a) Settlement discounts should be deducted from the cost of inventories 
 
b) IAS 2 Inventories requires only those rebates and discounts that have been received as a reduction in the purchase price of inventories to be taken into consideration in the measurement of the cost of the inventories. Rebates that specifically and genuinely refund selling expenses would not be deducted from the cost of inventories.  
 
c) When a rebate represents a reimbursement of a specific, incremental, identifiable cost incurred by an entity in selling a supplier’s products and the amount of the rebate credited or paid by the supplier exceeds the cost being reimbursed, the excess amount should be deducted from the cost of inventories 
 
d) When there is a binding agreement that requires the supplier to credit or pay a rebate provided the entity completes a specified cumulative level of purchases or remains a customer for a specified period of time, the rebate should be recognised as a reduction of the cost of purchases, provided the rebate is probable and reliably measurable. The entity should measure the rebate based on the amount expected to be received in relation to the underlying transactions that have occurred during the reporting period and that result in progress by the entity toward achieving the specified requirements for receiving the rebate 
 
e) Rebates that are discretionary should be recognised by the entity at the earlier of (1) when credited or paid by the supplier and (2) when the supplier becomes obligated to credit or pay them.  
 
2. November 2004 - Discounts and Rebates 
 
Issue 1:  
 
Should discounts received for prompt settlement of invoices be deducted from the cost of inventories or recognised as financing income? 
 
IFRIC Decision:  
 
Settlement discounts should be decucted from the cost of inventories.  
 
Issue 2:  
 
Should all other rebates be deducted from the cost of inventories? The alternative would be to treat some rebates as revenue or a reduction in promotional expenses. 
 
IFRIC Decision:  
 
IAS 2 requires only those rebates and discounts that have been received as a reduction in the purchase price of inventories to be taken into consideration in the measurement of the cost of the inventories. Rebates that specifically and genuinely refund selling expenses would not be deducted from the costs of inventories.  
 
Issue 3:  
 
Should volume rebates be recognised only when threshold volumes are achieved, or proportionately where achievement is assessed as probable? 
 
IFRIC Decision:  
 
On this issue, the IFRIC agreed that there was insufficient evidence of diversity in practice to warrant the matter being added to the agenda. 
Top 
 
3. March 2004 - Consumption of Inventories by a service organisation 
 
Issue:  
 
How should the assessment of net realisable value be performed when the inventory is consumed by a service entity as part of the service rendered. For example, cellular phone companies give subscribers free handsets in exchange for a fixed-term supply contract. 
 
IFRIC Decision:  
 
The same issues existed here as for commercial entities. The matter is one of assessing the recoverability of an asset without a direct cash flow. Such entities use inventory to generate a future revenue stream. As such, they should be accounted for similar to other items of inventory. 
Top 
 
4. August 2002 - Cash Discounts 
 
Issue:  
 
The IFRIC considered whether it should provide guidance regarding how a purchaser of goods should account for cash discounts received.  
 
IFRIC Decision:  
 
The IFRIC agreed not to require publication of an Interpretation on this issue because paragraph 8 of (the pre-improvements) IAS 2 Inventories provides adequate guidance. Cash discounts received should be deducted from the cost of the goods purchased.  
 
(Paragraph 8 was renumbered as paragraph 11 of IAS 2 as a result of the Improvements project) 
Top