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Monday 08 February 2016

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Long-term prepayments in inventory supply contracts

IAS 2 Inventories Long-term prepayments in inventory supply contracts


 Agenda decision

Issues related to the application of IAS 2

The IFRS Interpretations Committee (the ‘Interpretations Committee’) received a request seeking clarification on the accounting for long-term supply contracts of raw materials when the purchaser of the raw materials agrees to make significant prepayments to the supplier. The question is whether the purchaser should accrete interest on long-term prepayments by recognising interest income, resulting in an increase in the cost of inventories and, ultimately, the cost of sales.

Project stages

Deliberations

Status: In November 2015, the Interpretations Committee decided not to take this issue onto its agenda.