IAS 2 sets out how to value inventory (stock). This guide explains the 'lower of cost and net realisable value' rule and the allowed cost methods.
Published July 2026 · Updated July 2026
IAS 2, Inventories, sets the rules for valuing stock, the goods you hold to sell or use. Getting this right matters because stock value affects both your balance sheet and your cost of sales.
Inventory is measured at the lower of cost and net realisable value (NRV). NRV is the expected selling price less the costs to complete and sell. If stock is worth less than you paid, you write it down to NRV.
Cost includes purchase price plus costs to bring the stock to its condition and location. Where individual items are not identifiable, you use a cost formula, either first-in-first-out (FIFO) or weighted average. LIFO is not permitted under IAS 2.
You bought stock for £5,000, but it can now only sell for £4,200 after selling costs:
Because you have not sold it yet. Valuing at the lower of cost and NRV avoids recognising profit before a sale actually happens.
The estimated selling price of the stock, less the costs still needed to complete and sell it.
FRS 102 uses the same 'lower of cost and net realisable value' principle for inventory, so the idea carries across.
Source: IFRS Foundation ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.