Inventory Valuation

🍪 Accounting snack: Let`s have a look at inventory valuation by referencing to Swiss best known products.

⌚ Swiss wristwatch export was valued at $29.8 billion in 2023. An average export price approximated $1.6 thousand per watch. Switzerland is far ahead of the USA, Germany or China, the latest exporting watches at average price of $4. *

📈 The trend: Customer demand for luxury watches remains strong and continues to exceed supply. **

Swiss leadership is driven by premium brands like Rolex, Omega, Patek Phillipe or Breitling.

When valuing inventories according to #IFRS you will use the principles of Hashtag#IAS2 Inventories under which inventories shall be measured at the lower of cost and net realizable value (NRV).

Cost are all relevant costs of producing watches. Net realizable value is generally a selling price.

In case a selling price lies below cost, an impairment (write-off) must be booked in a respective period impacting profit and loss.

Selling price of watches is influenced by consumer/ fashion trends, technology, and competition. Luxury products are especially sensitive to changes in customers preferences, trends, and are a likely to react to an increased cost-of-living.

All these factors along with obsolescence and slow-moving items must be considered when assessing the saleability of watches.

📌 Important to know: IAS 2 is not applicable to inventories that are financial instruments according to IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments.

🍫 And, here comes the chocolate bit:

The annual report of the largest Swiss chocolate producer Barry Callebaut describes using hedge accounting to hedge its cocoa price risk embedded in its chocolate inventories. *** This practice is in line with IAS 2 which excludes financial instruments used for commodities (oil, gas, precious metals, etc.) from its scope.

Finally, where is the “cow” part?

🐄 Dairy cattle, sheep, pigs, or fruit trees are biological assets held for agricultural produce. At the point of harvest the produce is measured in accordance with Hashtag#IAS41 Agriculture at fair value less costs to sell.

🥛 After the harvest, a product of biological assets (milk, wool yarn or tea) is measured in accordance with IAS 2.

Sources:

• World watchmaking industry in 2023 (fhs.swiss) ** Annual Report FY 2023 of The WOS Group, plc *** Barry_Callebaut_Annual_Report_2022-23