Inventory

Question 1

Cost of inventory =

Answer 1

Cost of purchase
+ import duties and other taxes)
+ Transport and handling costs
+ Other directly attributable costs
- trade discounts

+ other costs of bringing the inventories to their present location
+ Borrowing costs

Not included:
Abnormal amounts of wasted materials, storage costs, administrative overheads and selling costs are typically not included

Question 2

Cost of conversion

Answer 2

Direct costs of material and labor
+ indirect cost of production:
. Variable production overheads
. Fixed production overheads

+ other costs of bringing the inventories to their present location
+ Borrowing costs

Not included:
Abnormal amounts of wasted materials, storage costs, administrative overheads and selling costs are typically not included

Question 3

Inventory is measured at

Answer 3

the lower of cost and NRV
NRV = estimated selling price - cost of completion - selling costs

Exception; if the materials held for use in the production are not written down below if the finished products in which they will be incorporated are expected to be sold at or above cost.

Question 4

Measurement inventory

Answer 4

FIFO
WACC (periodic) => periodically (typically at end of year)
WACC (perpetual) => Inventory records updated each time of a transaction takes place

Question 5

Changes in method;

Answer 5

Only possibly when it results in more reliable or more relevant information