BASF Report 2021

17. Inventories

Accounting policies

Inventories are measured at acquisition cost or cost of conversion based on the weighted average method. If the market price or the fair value of the sales products, which are based on the net realizable values, is lower, then the sales products are written down to this lower value. The net realizable value is the estimated price in the ordinary course of business less the estimated costs of completion and the estimated selling costs.

In addition to direct costs, cost of conversion includes an appropriate allocation of production overhead costs based on normal utilization rates of the production plants, provided that they are related to the production process. Pensions, social services and voluntary social benefits are also included, as well as allocations for administrative costs, provided they relate to the production. Borrowing costs are not included in cost of conversion.

Inventories may be impaired if the prices for the sales products decline, or in cases of a high rate of days sales of inventory (DSI). Write-downs on inventories are reversed if the reasons for them no longer apply.

The exception made by IAS 2 for traders is applied to the measurement of precious metals. Accordingly, inventories held exclusively for trading purposes are measured at fair value less costs to sell and recognized in the precious metal trading item (carrying amount as of December 31, 2021: €1,554 million; as of December 31, 2020: €1,604 million) under miscellaneous current assets. All changes in value are immediately recognized in the statement of income.

Inventories (Million €)

 

Dec. 31, 2021

Dec. 31, 2020

Raw materials and factory supplies

4,414

3,105

Work in progress, finished goods and merchandise

9,337

6,784

Advance payments and services in progress

117

121

Inventories

13,868

10,010

Work in progress, finished goods and merchandise are combined into one item due to production conditions in the chemical industry. Services in progress mainly relate to services not invoiced as of the balance sheet date.

Cost of sales included inventories recognized as an expense amounting to €44,244 million in 2021, and €30,379 million in 2020.

Write-downs on inventory were recognized in the amount of €97 million in 2021, and in the amount of €65 million in 2020.