Which IAS standards are associated with prudence in inventories and depreciation?

• A. A IAS 2
• B. B IAS 2 and IAS 36
• C. C IAS 16 and IAS 36
• D. D IAS 1

Answer: (B)

Prudence means not overstating assets or income and recognizing losses when they’re indicated. In inventories, prudence shows up through the requirement to measure at the lower of cost and net realisable value. If NRV falls below cost, a write-down is needed, so the asset isn’t carried at an inflated amount. That cautious approach is prescribed in IAS 2.

For depreciation and asset values, prudence is exercised by testing for impairment and recognizing any losses promptly. IAS 36 requires the carrying amount to not exceed the recoverable amount and restricts the reversal of impairment losses, ensuring assets aren’t carried at amounts that would overstate future benefits. This link to impairment (and how it affects asset value) is where prudence directly influences depreciation-related measurements.

IAS 16 governs how depreciation is calculated and applied, but it doesn’t tie the prudence principle to the measurement in the same explicit way as IAS 2 and IAS 36. IAS 1 focuses on presentation rather than measurement ethos. So the standards most aligned with prudence in inventories and depreciation are IAS 2 and IAS 36.