How is inventory defined in IFRS?

Inventory, according to International Financial Reporting Standards (IFRS), is defined as assets that are held for sale in the ordinary course of business, in the process of production for sale, or in the form of materials or supplies to be consumed in the production process. This comprehensive definition captures the different forms that inventory can take within a business context, encompassing finished goods, work-in-progress, and raw materials.

This definition is crucial for understanding the classification and management of inventory in financial statements. By recognizing inventory as an asset, IFRS emphasizes its role in generating future economic benefits for the entity through sales. This classification impacts how businesses report their financial performance and position, particularly in regard to the valuation and measurement of inventory on balance sheets.

The other choices do not align with the IFRS definition of inventory. For instance, a liability refers to obligations or debts owed by a business, which is a distinct concept from assets. Financial instruments pertain to contracts that give rise to a financial asset or a financial liability, which also do not fall under the inventory category. Intangible assets represent non-physical assets, such as patents or trademarks, and are accounted for separately from tangible inventory items. Understanding these distinctions helps clarify why the definition of inventory as an asset is essential