Statements of Financial Accounting Standards In Taiwan

Revised by the Financial Accounting Standards Committee In Taiwan on 29 November 2007

The purpose of this Statement is to establish the accounting standards for accounting treatment for Inventories in financial statements.

The initial valuation of inventory

The costs of merchandise, raw materials, and supplies inventory must include the purchase prices and other necessary addition costs for bringing the inventory to the saleable and useable location. The costs of finished goods and work-in-progress inventory must include direct raw materials, direct labor and manufacturing overhead. Manufacturing overhead shall be allocated according to a rational and systematic method.

Subsequent inventory valuation

Inventories shall be measured at the lower of cost and net realisable value. Inventory costs can be computed by one of the following methods: FIFO (first-in, first-out), average, or specific identification method. Net realisable 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. The comparison of cost and net realisable value may be made on the basis of specific items or classified items. Once the method is chosen, it must be applied consistently over each period. The amount of any write-down of inventories to net realisable value shall be recognised as cost of sales in the period the write-down occurs.

The cost of inventories may be valued by the standard cost method or the retail method, if the results approximate cost.

This statement also specifies disclosures about inventory.

This original statement becomes effective for financial statements for the fiscal year ending on and after 31 December 1987. This revised statement becomes effective for financial statements for the fiscal year beginning on and after 1 January 2009. Earlier adoption is allowed.

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