BASF Report 2021 Consoli dated Financial Statements – Notes 246 17 Inventories Inventories Million € Accounting policies Dec. 31, Dec. 31, 2021 2020 Raw materials and factory supplies 4,414 3,105 Inventories are measured at acquisition cost or cost of conversion based on the weighted average method. If the market price or the Work in progress, finished goods and merchandise 9,337 6,784 fair value of the sales products, which are based on the net r ealizable Advance payments and services in progress 117 121 values, is lower, then the sales products are written down to this Inventories 13,868 10,010 lower value. The net realizable value is the estimated price in the ordinary course of business less the estimated costs of completion Work in progress, finished goods and merchandise are combined and the estimated selling costs. into one item due to production conditions in the chemical industry. Services in progress mainly relate to services not invoiced as of the In addition to direct costs, cost of conversion includes an appropriate balance sheet date. allocation of production overhead costs based on normal utilization rates of the production plants, provided that they are related to the Cost of sales included inventories recognized as an expense production process. Pensions, social services and voluntary social amounting to €44,244 million in 2021, and €30,379 million in 2020. benefits are also included, as well as allocations for administrative costs, provided they relate to the production. Borrowing costs are Write-downs on inventory were recognized in the amount of not included in cost of conversion. €97 million in 2021, and in the amount of €65 million in 2020. 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.