This article discusses and compares the accounting treatment for inventories under MPSAS 12, MFRS 102 and Section 13 of MPERS. It highlights the main differences in the accounting treatment for inventories under the three standards. This article compares the accounting requirements for inventories in MPSAS 12 and how they are different from MFRS 102 and Section 13 of MPERS. This article also will not cover the discussion on which entity will use which standard as this discussion has been covered in Financial reporting frameworks in Malaysia.
What is the definition of inventories under MPSAS 12, MFRS 102 and Section 13 of MPERS?
MPSAS 12 defines inventories as assets:
- In the form of materials or supplies consumed in the production process;
- In the form of materials or supplies to be consumed or distributed in the rendering of services;
- Held for sale or distribution in the ordinary course of operations; or
- In the process of production for sale or distribution.
This definition of inventories under MFRS 102 and Section 13 of MPERS are similar to the definition of inventories in MPSAS 12.
What are the measurement requirements for inventories?
Both, MFRS 102 and Section 13 of MPERS require entities to measure inventories at the lower of cost and net realisable value (“NRV”). Measurement concept and principles for inventories are explained more in IAS 2 Inventories. The important fact that we want to bring in this article is on the measurement of inventories under MPSAS 12. MPSAS 12 introduces two sets of measurement principle for inventories whereby:
- For inventories that are held for (i) distribution at no charge or for a nominal charge; or (ii) consumption in the production process of goods to be distributed at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost.
- For inventories that are held other than for the purpose stated in (1) – inventories are measured at the lower of cost and NRV.
The above measurement principles in MPSAS 12 are very much different from MFRS 102 and Section 13 of MPERS due to the objectives of public sector entities. The nature and objectives of public sector entities is covered in Why there is a need for public sector accounting standards?
In term of the measurement of cost, there is no significant difference between MPSAS 12, MFRS 102 and Section 13 of MPERS. Cost to be included comprises of cost of purchasing the asset, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. However, MPSAS 12 provides additional guidance for inventories that are transferred to the entities through non-exchange transaction. In such a situation, cost of inventories is measured at their fair value as at the date of acquisition.
Besides those discussed above, other parts of the measurement requirements for inventories under MPSAS 12, MFRS 102 and Section 13 of MPERS are generally the same, including recognition as an expense and impairment losses (or writing down of the inventories value).
What are the differences in disclosure requirements for inventories under the three standards?
The disclosure requirements for inventories are generally the same between MPSAS 12 and MFRS 102. The disclosure requirements for inventories have also been covered in IAS 2 Inventories. MPERS, being the simplified accounting framework, does not require a disclosure to be made about the circumstances or events that led to the reversal of a write-down of inventories. Other disclosures for Section 13 of MPERS are the same with MPSAS 12 and MFRS 102.
We will continue the comparison analysis in our upcoming articles. Meantime, please enjoy other articles in Financial Accounting section.