In 2024, the Indonesian Institute of Accountants (IAI) issued updates to the Statement of Financial Accounting Standards (PSAK) 14 regarding inventories. These updates were made to align Indonesian accounting standards with international practices and to ensure that financial reporting accurately and transparently reflects economic conditions. Here are some key points in the PSAK 14 update for 2024.

1. Definition and Recognition of Inventory

Inventory is defined as assets that:

  • Are held for sale in the ordinary course of business;
  • Are in the process of production for such sale; or
  • Are in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Inventory should be recognized as an asset when the entity controls the goods, it is probable that future economic benefits will flow to the entity, and the cost of the inventory can be measured reliably.

2. Measurement of Inventory

The 2024 update to PSAK 14 emphasizes that inventories should be measured at the lower of cost and net realizable value.

  • Cost: Includes all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition. Purchase costs include the purchase price, import duties, and other taxes (non-recoverable), and transport costs. Discounts, rebates, and other similar items are deducted from the purchase costs.
  • Net Realizable Value: Is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

3. Cost Formulas

PSAK 14 (2024) permits the use of the First-In, First-Out (FIFO) or weighted average cost formulas to determine the cost of inventory. The Last-In, First-Out (LIFO) method is not allowed as it is considered not to reflect a realistic flow of inventory and related costs.

4. Presentation and Disclosure

Entities must disclose:

  • The accounting policies adopted in measuring inventories, including the cost formula used.
  • The total carrying amount of inventories and the classification thereof (e.g., merchandise, raw materials, work in progress, finished goods).
  • The amount of inventories carried at net realizable value.
  • The amount of inventory costs recognized as an expense during the period.
  • The amount of any write-down of inventories to net realizable value and the reversal of any such write-down.
  • The circumstances or events that led to the reversal of a write-down of inventories.

5. Inventory Write-Down

If there is an indication that the net realizable value of inventory is lower than its cost, the inventory should be written down to its net realizable value. A write-down of inventory is recognized as an expense in the income statement. If there is a recovery in the value of the inventory due to an increase in net realizable value, the recovery is recognized as a reduction of the expense for the period.

6. Impact of Updates on Financial Statements

The 2024 updates to PSAK 14 provide clearer and more consistent guidance for the recognition, measurement, and disclosure of inventories. This is expected to enhance the reliability and relevance of financial information presented in financial statements, thereby assisting stakeholders in making better economic decisions.

With these updates, entities in Indonesia are expected to adopt better accounting practices in managing inventories, which will ultimately support transparency and accountability in financial reporting.

The 2024 update to PSAK 14 underscores the importance of compliance with applicable accounting standards and encourages entities to stay abreast of regulatory changes and best practices in inventory accounting.

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