Cost of Sales & Treatment of Inventories

Question 1

Inventory definition by IAS 2

Answer 1

Asset held for sale in the ordinary course of business

Question 2

Steps involved in accounting for inventories

Answer 2

1. Perform inventory count
2. Quantify the Inventory
3. Value the Inventory
4. Record the Value of Inventory in the Final Accounts

Question 3

2 approaches to establish quantity of inventory

Answer 3

1) Continuous approach
2) Periodic approach

Question 4

Continuous approach of inventory

Answer 4

• Each product has its inventory record
• Records quantities of purchases and sales
• Keep a running total of the amount of inventory as each new transaction takes place

Opening inventory + purchases − sales = closing inventory

Question 5

Periodic approach of inventory

Answer 5

• No record cards
• Physically counted at the end of the year
• Listed on a list

Question 6

Is settlement discount included in cost of inventory ?

Answer 6

No ! Only trade discount