I - Inventories: General principles

3. Valuation

• (IAS 2, par 10)
  Inventories shall be measured at the lower of cost and net realisable value.
• Finished and semi-finished goods:
• manufactured: measured at their production cost.
  The expenses to be included in calculating the inventory values of finished goods are set out in the rules on calculating manufacturing costs.
• purchased: measured at their acquisition cost, or at their market value at closing where the latter is lower.
• Other inventories:
• Procurements (raw materials, consumables and supplies, packaging, spare parts, ...) are recorded at their acquisition cost, including incidental expenses, or at their market value at closing where the latter is lower. Valuation at the lower market value (*) must be adjusted if the market value later exceeds the value recorded.
  (*) By market value, we understood replacement value for the raw materials and the consumables, and the net realizable value less finalization costs for works in progress.
  The acquisition cost includes custom duties, transport costs, handling costs as well as all other costs directly attributable less discounts, rebates, and subsidies.
• Work in progress is valued at cost price.
• "Take or Pay" contracts are not valued in inventory but expensed in the P&L.
  A "Take or Pay" clause in a contrat is a clause in which a provider guarantees delivery of a product to an operator, and the operator in turn guarantees payment to the provider regardless of whether the operator takes delivery of the product.

• Any impairment of inventory items must be recognized via a provision for inventory impairment.

• Valuation of inventories of by-products, waste and recyclable products
• A production process may result in the simultaneous production of more than one product. When the transformation costs of each product cannot be identified separately, they are spread over the different products according to a rational, long lasting and consistent approach.
• The costs of these products are valued at the net realizable value and this value is deducted from the cost of the principal product in order to obtain a cost for the principal product that is as close as possible to its actual cost.
• Practically speaking.

• Inventory items acquired in a business combination
• The term “business combination” covers the following transactions: acquisitions of companies, mergers with an outside company or acquisitions of a complete activity segment.
• Inventories are valued at their fair value on the date of entry into the consolidation (realization value):
• Inventories of finished products: sales price less disposal costs less the margin on the sales activity still to be realised.
• Inventories of goods in process: sales price of finished products less production costs to be incurred for finishing the product less disposal costs less margin on the production and sales activities still to be realized.
• Inventories of raw materials: replacement cost.
• As a result, for the inventories present on the acquisition date, disposals made after this date will generate little (or no) earnings.
• Only the normal margins on the sales and production activities still to be realized will contribute to the earnings generated from the acquired products by the consolidating company.