Inventories

Question 1

Where are inventories recorded?

Answer 1

As an asset according to IAS 2.6 (except for construction contracts recorded according to IFRS 15)

Question 2

What is an inventory?

Answer 2

item held for sale in ordinary business activity, a WIP to sell. raw materials to be consumed during production

Question 3

How to measure inventories?

Answer 3

At the lowest between cost and net realizable value

Question 4

What do the cost of inventory include?

Answer 4

all costs of purchase:
- price, import duties, taxes
- transport & other direct costs
- trade discounts, rebates

all conversion costs:
- direct labor costs
- fixed and variable production overhead costs
(depreciation, maintenance, factory administration, indirect materials and labour)
- other costs incurred when transporting inventory to location

Question 5

FIFO Formula

Answer 5

The first inventories to be purchased/manufactured are out first. BS inventory is valued at cost of units most recently purchased/manufactured

Question 6

Why do we use weighted average cost formula

Answer 6

inventory at the end of the period must reflect weighted average cost based on unit cost of beginning inventory and units purchased during period

average inventories determined by periodic or moving average basis

Question 7

How to find net realizable value?

Answer 7

Estimated selling price during normal business activity
- (estimated costs of completion + estimated costs of sale)

Question 8

Net realizable value characteristics

Answer 8

Appropriate if costs of inventory are not recoverable
Inventories are usually written down to net realizable value (impairments) item by item
May be appropriate to group similar items together

Question 9

When are inventories recognized as an expense?

Answer 9

At the period at which the related revenue is recognized according to the matching principles (match cost and revenue)