Issue

The IFRIC considered three related questions on the application of IAS 2 which had been referred to it by the Urgent Issues Group (UIG) of the Australian Accounting Standards Board:

(a) whether discounts received for prompt settlement of invoices should be deducted from the cost of inventories or recognised as financing income;

(b) whether all other rebates should be deducted from the cost of inventories. The alternative would be to treat some rebates as revenue or a reduction in promotional expenses; and

(c) whether volume rebates should be recognised only when threshold volumes are achieved, or proportionately where achievement is assessed as probable.

Decision not to add

November 2004

Reason

On (a), the IFRIC agreed that settlement discounts should be deducted from the cost of inventories.  Because the requirements under IFRS were sufficiently clear, the IFRIC agreed that the matter should not be added to the agenda.

On (b), the IFRIC agreed that 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.  Because the requirements under IFRS were sufficiently clear, the IFRIC agreed that the matter should not be added to the agenda.

IFRIC reference: IAS 2