Chapter 6 - Inventories Flashcards
Which standard covers inventories?
IAS 2
What does IAS 2 for inventories not apply to?
IAS 2 applies to all entities, however does not apply to:
- financial instruments under IAS 32
- biological assets at the loint of harvest under IAS 41
What is the definition of inventories under IAS 2?
Assets that are:
- held for sale in the ordinary course of Business
- in the process of production for such sale, or
- materials or supplies used in the production process.
What are examples of inventories under IAS 2?
- Merchandise purchased by a retailer for sale
- land property or other assets held for resale
- finished goods produced
- work in progress
- materials or supplies awaiting use in the production process
- for service providers - costs of a service that has not yet been billed
What should inventory be valued at under IAS2.9?
Lesser of cost and net realisable value
What is the definition of cost under IAS 2?
All costs of purchase, conversion, and other costs incurred in bringing the inventories to their present location and condition
What is net realisable value according to IAS 2?
Estimated selling price in the ordinary cost of business, less estimated costs to completion and estimated costs to sell.
What are fixed production costs under IAS 2?
Indirect costs of production that remain relatively constant regardless of volume of production.
Allocated to inventories on the basis of normal capacity.
What are variable production overheads under IAS 2?
Coats incurred in the processing of raw materials that vary directly with production.
Are costs of storage of finished goods usually treated as inventory costs?
No.
This is not a cost of bringing inventory to its present condition or location.
May be inventory costs for WIP or unfinished goods.
Are selling costs usually treated as inventory costs?
No.
Not a cost involved in bringing the asset to its present condition or location.
What methods are able to be used in valuing inventory under IAS 2?
FIFO
Weighted average cost
Can LIFO be used to value inventory under IAS 2?
No
True or false:
Any entity can use different methods of valuing inventory of a similar nature
False.
Must use the same methodology for any inventory of a similar nature.
What disclosures should be included under IAS 2?
- accounting policies for inventory
- total carrying amounts of inventory in a manner relevant to the business
- carrying amount of inventories
- amount of inventories recognised in the P&L for period
- amount and circumstances of any reversals of write-downs of inventory
- carrying amount of inventories that are pledged as security
