7.7. Inventories

Inventories are stated at purchase price or production cost which, however, is not higher than their net sales prices. The net sales price is the estimate sales price in ordinary course of business, less pertinent variable selling and distribution expenses. The cost of finished products and production in progress comprises direct labor, auxiliary materials, other direct costs and pertinent general production costs (based on normal production capacity).
The value of consumption of materials and goods is determined using the „first in first out” (FIFO) method. The consumption of finished products is determined using the weighted average method.

The Group recognized impairment losses on inventories of finished products if they are measured at net sales price, which is lower than their manufacturing cost. The manufacturing cost at the end of a reporting period is the average manufacturing cost, calculated from the beginning of the year to the relevant reporting month. The net selling price is assumed to be equal to realistically achievable market prices.

Impairment losses on inventories of finished products, both recognition and reversal, is captured as cost of the period when the charge took place.

If any events occur that causes material inventories to lose their ‚value in use’, the Group makes a relevant impairment loss, making sure however that the carrying amount of inventories never exceeds their recoverable amount. Impairment losses on inventories of materials are made no less frequently than at end of each quarter and captured as cost of the period in the „Cost of products, materials and goods sold” item.

The inventories of finished products as at 31 December 2018 included, among others, inventories of 791.6 thousand tons of coal produced by the Group with a value of PLN 275.9 million and inventories of 225.3 thousand tons of coke produced by the Group with a value of PLN 149.4 million (as at 31 December 2017: 645.2 thousand tons of coal with a value of PLN 235.8 million and 194.1 thousand tons of coke with a value of PLN 101.8 million).

The table below depicts impairment losses for inventories:

Recognition and reversal of impairment loss amounts for inventories were recognized as costs in the current reporting period.

Impairment losses for inventories recognized in 2018 refer to finished products and materials and merchandise.