6. Other accounting standards Flashcards
According to IAS2, what can inventories include?
Goods purchased and held for resale, finished goods, work in progress and raw materials
What should inventories be held at?
The lower of cost and net realisable value, individual for each line of inventories
What does cost of inventories include?
- Costs of purchase (price, direct costs to deliver)
- Costs of conversion (direct unit costs, prod overheads)
- Specific design costs
NOT storage or selling costs
What are the two methods of determining costs for non interchangeable items?
Standard cost or the retail method (selling price - margin)
What are the two methods of determining costs for interchangeable items?
FIFO and weighted average (NOT LIFO)
What is the net realisable value of an item of inventory?
Estimated selling price less costs of completion and marketing/sales costs
Why might NRV of inventory fall below cost?
Fall in selling price, deterioration, obsolescence, strategic decision and production errors
What is the accounting treatment when the NRV of inventory falls below the cost?
Write down to the recoverable amount and charge the fall in value to the P&L
What is the IAS for inventories?
IAS2
What is the IAS for events after the reporting period?
IAS10
What are events after the reporting period?
Events which occur between the end of the reporting period and the date on which the financial statements are authorised for use
What classify as adjusting events?
Events that existed prior to the end of the reporting period, e.g:
- Court case settlements
- Customer bankruptcy
- Sale of inventories below cost
- Impairment of PPE
What classify as non adjusting events?
Events that arose after the end of the reporting period, e.g:
- Fire or flood damage
- Fall in market value
- Plans to discontinue operations announced after
- Asset purchases
- Share transactions
- Dividends proposed after the reporting period
