Inventories

Question 1

What costs are included in and excluded from merchandise inventory?

Answer 1

Included: Any costs incurred to bring to location & condition so that it cna be sold to customers. Cost of purchase, shipping costs to receive merch, import duties & unrecoverable taxes.

Excluded: Costs incurred after it is in condition where it can be sold. Storage and shipping costs to customer.

Question 2

Examples of overhead costs

Answer 2

costs to operate manufacturing facility:
heat
electricity
depreciation of the facility
insurance
indirect factory labour

Question 3

How is over- or under-allocated overhead accounted for?

Answer 3

If inventory sold -> adjust through COGS

If inventory partially sold -> adjust through COGS and inventory

Question 4

Two accepted inventory cost flow assumptions

Answer 4

1. FIFO

2. Weighted average

Question 5

Inventory is carried at the lower of …?

Answer 5

Cost or net realizable value (NRV)

Question 6

Net realizable value

Answer 6

proceeds less selling costs

Question 7

IFRS vs ASPE: borrowing costs

Answer 7

IFRS: Requires capitalization of borrowing costs (IAS 23)
ASPE: Allows companies to either capitalize or expense borrowing costs