Inventories

Question 1

What are inventories?

Answer 1

Goods sold by the company and materials used to make those goods

Question 2

What does IAS2 say about the capitalisation of inventory assets?

Answer 2

• cost of goods/materials
• costs directly attributable to acquiring inventories (costs to buy and make inventories)

Question 3

What are included as costs directly attributable to acquiring inventories?

Answer 3

• delivery
• materials
• labour
• production overheads (variable) - per unit amount: overheads/actual units produced
• production overheads (fixed) - per unit amount: overheads/normal volume of units produced

Question 4

What is included in the expense to the P&L?

Answer 4

• costs not directly attributable to acquiring inventories (storage, selling, distribution)

Question 5

How is inventory measured?

Answer 5

Lower of:
- cost
- net realisable value

Question 6

When is inventory impaired?

Answer 6

if the cost is more than the net realisable value
Cr inventory, Dr P&L

Question 7

What is classed as disposal of inventory?

Answer 7

When inventory is sold to a customer
Allocate items of inventory based on FIFO or weighted average