Why are the two purchases accounted for differently?
The official [IAS 2 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/) addresses inventories, while the [IAS 16 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-16-property-plant-and-equipment/) addresses property, plant and equipment. Start with the resource’s purpose. The same physical item may have different roles: equipment bought for resale should not automatically be treated like equipment the organisation uses itself.
This guide uses a simple model of goods and separate working equipment. Production costing, complex components and special asset classes are excluded. Establish the basic logic first, then apply the rules for the particular transaction.
When does inventory cost reduce profit?
The IAS 2 overview says that when inventories are sold, their carrying amount is recognised as an expense in the period when the related revenue is recognised. Thus buying a whole batch and recognising the cost of the part sold are not the same amount when some of the batch remains.
Ask three questions: what was acquired, what was sold, and what remains? Then determine how the sold portion and balance were measured. Do not choose a method merely because it is convenient in a spreadsheet; real reporting requires an accounting policy and the standard’s requirements.
Why is equipment depreciated?
The [SEC investor guide](https://www.sec.gov/about/reports-publications/investorpubsbegfinstmtguide?output=1) explains depreciation as allocating the cost of long-term resources used over their periods of use. It is not a current payment to the supplier and is not a mandatory cash reserve in a separate account.
IAS 16 addresses recognition, carrying amount, depreciation and impairment of property, plant and equipment. The general idea does not itself determine useful life, residual value or method for a particular asset. A teaching calculation must state those assumptions explicitly, or a chosen number may be mistaken for a rule.
How do goods and equipment divide in the example?
**Synthetic educational example. All amounts are invented and stated in arbitrary currency units.** A trading organisation buys goods for 100 and pays immediately. A portion with known cost of 60 is sold for revenue of 90; goods costing 40 remain. There are no other inventory transactions.
Gross result is 90 − 60 = 30. Expensing the entire purchase of 100 as cost of goods sold would include goods still held. The cash payment of 100 is real, but it is a separate question from the result.
Separately, the organisation buys equipment for 240 and pays in full. Assume use begins at the start of the year, useful life is four years, residual value is zero and depreciation is straight-line. Annual depreciation is 240 / 4 = 60; after one full year the simplified carrying amount is 180. There is no impairment or other change.
The examples are separated because, in production, depreciation may enter the cost of inventories. Mechanically adding 60 to every current expense could therefore misstate a model. We do not claim that inventory profit of 30 and depreciation of 60 necessarily belong to one final statement.
What if the remaining goods can no longer realise the expected amount?
IAS 2 measures inventories at the lower of cost and net realisable value. NRV reflects the expected selling price less the related costs of completion and sale; it is not simply an arbitrary discount price.
Continue only the inventory part of the model. If the reliably estimated NRV of the goods costing 40 is 32, the illustrative write-down is 8. This applies the stated values; it does not teach how to set a price without evidence. A real assessment requires data about the goods and selling conditions.
Which mistakes recur?
Do not treat inventory still on hand as earned profit. Do not treat buying equipment as an automatic expense of the whole amount in the current period. Do not call depreciation a cash reserve. Do not confuse depreciation with impairment: they have different bases.
Do not change useful lives merely to obtain a attractive result or treat a large warehouse balance as proof of sales growth. Return to purpose, use and evidence. For the link with payments, see [profit versus cash](/guides/profit-vs-cash/) and [cash flows](/guides/cash-flow-statement/).
What requires further knowledge?
This guide does not choose an inventory or depreciation method for a particular organisation and does not determine tax accounting. Formal conclusions require applicable rules and professional analysis. Related concepts include cost, NRV, property, plant and equipment, useful life and impairment. The role of inventory in near-term payments is discussed in [working capital](/guides/working-capital/).