Inventories and Other Standards

Question 1

Inventories valuation

Answer 1

Lower of NRV less cost to sell and cost (purchase and conversion)

Question 2

Purchase and conversion

Answer 2

Purchase: cost, transport, trade discounts
Conversion: direct labour, production overheads

Question 3

NRV

Answer 3

Selling price less costs to sell

Question 4

Costs excluded from inventories and cost

Answer 4

Storage costs, waste, administrative overheads, overheads

Question 5

Policy vs Estimates

Answer 5

Policy = Valuation of inventory
Policy is a change of recognition, presentation, measurement basis
Estimates = Depreciation, useful live and allowance for receivables

Question 6

IAS 41 = Biological assets

Answer 6

FV and revaluation goes to SoPL

Question 7

Changes in Estimate

Answer 7

Changes in accounting estimates (Depn, UEL, Receivables allowance) only require a prospective adjustment = current and future periods

Question 8

Change in Policy

Answer 8

Changes in accounting policy (FIFO vs AVCO), Depn in CoS instead of expenses)
Retrospective adjustment = Amend Opening Retained earnings in SoCIE

Question 9

If sale price isn’t given, and only Gross Profit Margin is

Answer 9

If Gross Profit Margin is 30%, take cost divided by 70% to get Sale price.
Remember to remove agency fee and then calculate commission on this figure

Question 10

Included in Inventories calculation

Answer 10

Raw materials
Import duty
Direct labour and subcontracted labour
Production overheads allocatable

Excluded: waaste, tax, storage

Question 11

IAS 41

Answer 11

Live animals and milk yes, cheese is a byproduct so no
Value at FV and any gain taken to SoPL

Question 12

Change in accounting policy of inventory (FIFO vs AVCO)

Answer 12

Remember, Opening inventory minus closing inventory
And include the opening balance as it’s a change in policy
The closing balance is included in the SoCIE

Question 13

Revaluation to market value: what will be affected?

Answer 13

Yes: RoCE, Gearing and Net Profit Margin (if Depn goes to op expenses)
No: Current Ratio, Gross Profit Margin