Accounting for Inventory

Question 1

What does IAS 2 require?

Answer 1

Inventory to be stated at the lower of cost and net realisable value

Question 2

What is cost?

Answer 2

Comprising all costs of purchase and other costs incurred in bringing inventory to its present location and condition

Question 3

What is NRV?

Answer 3

Estimated selling price in ordinary course of business - (estimated cost of completion + estimated costs necessary to make the sale)

Question 4

What does IAS 2 broadly mean?

Answer 4

Inventory should be stated at cost, because companies tend to sell inventory for more than it costs

Question 5

What is possible in IAS 2?

Answer 5

inventory is not worth what it costs, it should be stated at what it is worth (e.g. net realisable value)

Question 6

What must auditor’s understand?

Answer 6

How company determines the cost of an item for inventory valuation purposesW

Question 7

What should costs include?

Answer 7

An appropriate proportion of overheads

Question 8

What may entity use?

Answer 8

Standard costs to value inventory provided that the standard costs approximate to actual cost