Inventory-ASPE3031 IAS2 Flashcards
1
Q
What costs must be included in
(or allocated to) inventory?
A
ASPE 3031 and IAS 2
- All costs incurred to bring inventory to present
location and condition - Includes direct costs (e.g., labour and materials),
variable overhead and fixed overhead (overhead
must be allocated – it is not optional)
2
Q
What are examples of costs that are not included in inventory?
A
ASPE 3031 and IAS 2
- Abnormal waste of materials, labour or other production
costs - Storage costs, unless those costs are necessary in the
production process before a further production stage; - Administrative overheads that do not contribute to
bringing inventories to their present location and condition - Selling costs
3
Q
On what basis must fixed overhead be allocated to inventory?
A
ASPE 3031 and IAS 2
- Based on normal capacity (not actual production as this could lead to inflating the value of inventory if production is below normal capacity)
4
Q
What inventory costing methods (LIFO, FIFO, weighted average cost) are acceptable?
A
ASPE 3031 and IAS 2
- Must use FIFO or weighted average cost (LIFO not acceptable)
5
Q
Inventory is recorded at the lower of cost and NRV. When can
similar items/products be grouped together for purposes of
applying the lower of cost and NRV comparison?
A
ASPE 3031 and IAS 2
- Inventory can be grouped for purposes of determining a write-down only when it:
- Relates to the same product line and has similar purposes or end uses
- Is produced and marketed in the same geographical area
- Cannot be practicably evaluated separately from other items in that product line
- The issue with grouping of items is that an excess of cost over NRV on one item or group of items can offset a deficiency (which would otherwise require a write-down) on another
- It is not appropriate to write inventories down on the basis of a classification of inventory (for example, finished goods, or all the inventories in a particular industry or geographical segment)
