Question

: IAS 2 Inventories allows producers of gold and silver to measure inventories of those commodities at selling price, even before they have sold it, which means a profit is recognised at production. In nearly all other industries, however, profit is recognised only when the inventories are sold to outside customers. What concept(s) in the Conceptual Framework might the IASB have looked to with regard to accounting for gold and silver production

Answer 1

Answer:

Not only does IAS 2 norm allow this, also US GAAP allows this. I believe that the reasoning behind that is the following:

Holding precious metals in inventory is actually considered an investment. Precious metals are commodities, and since they can be easily traded around the world, just having them increases a company's wealth. The revenue recognition principle (top of the inverted pyramid) applies here even to any individual that finds gold nuggets by accident in the country side (no need to be a mining business). The fact that you possess gold increases your personal assets and net wealth. The same applies to other precious metals. This happens because gold or other precious metals can be easily converted into cash (extremely liquid), e.g. this same individual can go to a local jewelry or or a pawn shop and sell the gold nuggets he found.

If finding a gold nugget increases an individual's net worth, then imagine what holding a ton of gold does to a company. What makes gold and silver so special is that they are accepted everywhere. Remember that until the early 1970s, the worlds' currencies were based on the price of gold (gold standard). Most central banks in the wold hold gold reserves and they also follow this same logic. Price of gold increases, the wealth of the nation increases.