IAS 02 Inventory

Question 1

What is Inventory?

Answer 1

Inventories are assets:
– Held for sale in the ordinary course of business
– In the process of production for sale
– In the form of materials or supplies to be consumed in the production process or in the rendering of services

Question 2

Classification of Inventory?

Answer 2

• Goods purchased and held for resale (Merchandise) (156)
• Finished goods produced (155)
• WIP (154)
• Raw Materials: Materials and supplies awaiting use in the production process (152, 153)
• Goods in transit (151)
• Goods in consignment (157)
• CP DV DD

Question 3

Inventory excluding:

Answer 3

• WIP under construction contracts (IAS 11)
• Financial instruments (ie shares, bonds)
• IAS 41
• Livestock, agricultural and forest products, and mineral ores
• commodity broker-traders who measure their inventories at fair value less costs to sell.

Question 4

What is NRV?

Answer 4

Estimated SP in the ordinary course of biz less the estimated costs of completion and the estimated costs necessary to make the sale

Question 5

What is Cost of inventories?

Answer 5

• Cost of Purchase
• Cost of conversion
• Other costs incurred in bringing the inventories to their present location and condition

Question 6

What is Costs of purchase?

Answer 6

• Purchase price
• Import duties and other taxes (các loại thuế không hoàn lại) (VD excise tax) (not consumption tax)
• Transport, handling and any other cost directly attributable to the acquisition of finished goods,
  services and materials
• Less any trade discounts, rebates and other similar amounts

Question 7

What is Cost of conversion?

Answer 7

• Costs directly related to the units of production, eg DM, DL (CP để có đc DM và DL)
• Fixed and variable production OH incurred in converting materials into finished goods, allocated on a systematic basis

Question 8

Fixed production overheads

Answer 8

are independent of the level of production activity
Eg: the cost of factory management and
administration, depreciation, maintainance cost, rental cost, salary của cán bộ quản lý px, insurance

Question 9

Variable production OH

Answer 9

directly, or nearly directly, with the volume of production, eg indirect materials and labour, electricity, water exp

Question 10

How to allocate fixed production OH to items of inventory?

Answer 10

on the basis of the normal capacity of the production facilities

Question 11

Normal capacity (Công suất bình thường)

Answer 11

expected achievable production based on the average over several periods/seasons, under normal circumstances, taking into account the loss of capacity resulting from planned maintenance (là SL đạt đc ở mức TB trong ĐK SX bt)

Question 12

How to allocate variable production OH to items of inventory?

Answer 12

based on the actual use of production facilities

Question 13

NOT the cost of inventory? -> Expense

Answer 13

• Abnormal amounts of wasted materials, labour or other production costs
• Storage costs (except costs which are necessary in the production process before a further production stage) is distribution cost
• Administrative overheads
• Selling costs

Question 14

When NRV

Answer 14

• An increase in costs or a fall in selling price
• A physical deterioration in the condition of inventory
• Slow-moving items Obsolescence
• Failure in marketing strategy
• Errors in production (wastage) or purchasing (at high cost)

Question 15

Relevant Acc.Std and Regulations?

Answer 15

• IAS 02
• VAS 02
• Circular 228/2009/TT-BTC - provisions for devaluation of Inv, loss of Fin Investments, bad debts and warranty

Question 16

Disclosure

Answer 16

1) Accounting policies (cost formulas)
2) Total carrying amount of inventories (classifications)
3) Carrying amount of inventories carried at NRV

Question 17

Other Cost: bring to present location and condition

Answer 17

• the cost of transporting a product from the factory to its retail location
• Certain non-production overheads are allocated to inventory. Example: A portion of a plant manager’s salary can be allocated to inventory if it’s incurred in bringing inventory to its present location.
• Certain inventory may take a substantial period of time to get ready for its intended sale or use. In limited circumstances, and provided certain conditions are met, interest costs may be included in the measurement of such inventory under IAS 23:Borrowing Costs. Example: Interest costs may be included in maturing inventory, such as whisky. The production period is attributable to bringing the product to its existing condition, and so the addition of interest is therefore permissible under the allowed alternative treatment of IAS 23.

Question 18

Service provider

Answer 18

In the case of a service provider, when revenues have not been recognised, a service provider has inventories. However, the costs must be directly linked to the service provided, such as labour and other costs of personnel providing the service and attributable overheads. Labour and other costs of administrative and sales personnel are not recorded as inventory but should be recognised as expenses when incurred.

The laptops should be classified as property, plant and equipment since they are not held-for-sale but used for providing service and, are likely to be used for more than one period. However, under IAS 16, depreciation of the laptops would be allocated to inventory.

Similarly, rent expense is not an item of inventory, but would be allocated to inventory in measuring the cost of inventories of a service provider.