Advance to supllier

[MERGA]

We have a question in our organization on how we account for advances made to supplier. Below are the two different opinions from within our finance team and consultants: I request expert comments please on which approach out of (1) and (2) below is right as per IFRS compliance and if you give links or IAS references it would be most helpful

1. All advances to suppliers have to be accounted and disclosed as an Asset as below:
a. If the advance is extended to the supplier for delivery of a capital asset, then it has to be accounted and grouped as "Other Non-Current assets" under Non-Current Assets.
b. If the advance is extended to the supplier for delivery of a raw material used for trade or producing trade goods, then it has to be accounted and grouped as "Other Current assets" under Current Assets.

2. All advances to suppliers can be treated as a WIP or a Goods in transit as below:
a. If the advance is extended to the supplier for delivery of a capital asset, then it can be accounted and grouped as "WIP(work in progress) under Fixed Assets.
b. If the advance is extended to the supplier for delivery of a raw material used for trade or producing trade goods, then it can be accounted and grouped as "Goods in Transit" under Inventories under Current Assets.

I have not got any references to IAS for both the above arguments from the consultants/ finance teams.
Thanks in advance.

Merga Sori

 

[kirby]

When you look at Option 1 vs Option 2, the key difference is that Option 1 gives a description that is much more vague than Option 2. In Option 2, we know the advance has something to do with Fixed Assets or Inventory. Not so in Option 1 which just tells us that we have either a "other non-current asset" or a "current asset". Great. Under Option 1 if it is non-current I could have land, a fixed asset, a long term security or you name it. Bottom line: "I'd like to buy a vowel" as they say in Wheel of Fortune. i.e. I need a better clue to help me.

To make the financial statements useful to the reader, go with the more descriptive option 2.