Ministry of Finance, Enterprise Accounting Guidelines - Inventory

Issued: 21 November 2001
Effective: 1 January 2002
Applicability: The Guidelines are not applicable to projects under construction, produce of agricultural enterprises, mineral products of mining enterprises, biological assets associated with husbandry and agriculture and initial valuation of inventories acquired in merger of enterprises (Item 2). The Guidelines shall not be applied retroactively to inventories acquired prior to the effective date of the Guidelines other than provisions made for their devaluation (Item 29).

Main contents: These Guidelines concern the accounting methods and information disclosure in connection with inventories. They stipulate that inventory is recognized only if its economic benefits are likely to flow to the enterprise concerned and its cost can be measured reliably (Item 4). Inventories shall be booked at cost, which should include the acquisition cost, processing cost and other costs (Item 5). The methods of determining the booked cost and the component costs thereof are specified in the Guidelines (Items 6 to 12). Where inventories are injected as investment, their costs shall be determined by the investors (Item 13). Where inventories are acquired in debt restructuring, their costs shall be determined in accordance with the Enterprise Accounting Guidelines - Debt Restructuring (Item 14). When inventories are issued, their costs may be determined on actual, FIFO, weighted average, moving average or LIFO basis, at the discretion of the enterprise concerned in the light of the actual circumstances of the inventories (Item 17). Costs of inventories at the end of an accounting period shall be determined at the lower of their costs and variable present value (Item 18). The enterprise shall disclose information relating to its inventory, including its book value, provisions for devaluation, basis of determining its variable present value and its cost on issue and inventory costs recognized as expenses in the current period (Item 28).