Valuing inventory

In this lesson

1. 0:00 Inventory valuation under IAS 2
2. 0:50 Understanding cost and net realisable value
3. 1:02 Costs included in inventory valuation
4. 2:15 Costs excluded from inventory
5. 3:10 Calculating net realisable value
6. 4:05 Identifying includable costs: worked example
7. 5:35 Item-by-item valuation principle
8. 6:04 Applying lower of cost or NRV: practical case

About this lesson

overheads, selling costs). The key principle: always apply the lower of cost and NRV on an item-by-item basis, not in total, which often catches students out in exams. The lesson breaks down the detailed definition of inventory cost, covering purchase price (net of recoverable sales taxes), direct labour, variable overheads, and allocated fixed overheads based on normal activity. You'll learn what net realisable value means in practice—estimated selling price minus completion costs and selling expenses—and why this matters when inventory becomes obsolete or damaged. A worked example shows how applying the lower of cost and NRV line by line can produce a different total than if you compare totals, reinforcing why the methodology matters for accurate financial statements and exam success.

Duration: 8m