Chapter Seven: Inventories Flashcards
What is the basic inventory rule from IAS 2?
Inventories are required to be stated at the lower of cost and NRV.
How does IAS 2 define costs?
All costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and conditions.
What four costs are specifically excluded under IAS 2?
Abnormal amounts of wasted materials, labour and other production costs.
Storage costs unless necessary in the production process before a further production stage.
Administrative overheads that do not contribute to bringing inventories to their present location and condition.
Selling costs.
What is net realisable value (NRV)?
This is the expected selling price in the ordinary course of business less any costs to complete and sell.
What three methods of inventory accounting methods are acceptable under IAS 2?
Unit cost, weighted avg. cost, FIFO.
What is unit cost?
The actual cost of purchasing or manufacturing identifiable units of inventory.
What is weighted average cost?
The calculation of the cost of inventories and WIP on the basis of the application to the units of inventories on hand of an average price computed by dividing the total cost of units by the total number of such units (this average price may be arrived at by means of a continuous calculation, a periodic calculation or a moving periodic calculation).
What is FIFO (First in, first out)?
The calculation of the cost of inventories and WIP on the basis that the quantities in hand represent the latest purchases of production.
