Lecture 10 - inventories

Question 1

what are inventories?

Answer 1

assets
- held for sale in the ordinary course of business
- in the process of production for sale
- in the form of materials or supplies to be consumed in the production process

AKA, finished goods, WIP, raw materials

Question 2

how are inventories measured?

Answer 2

lower of cost and NRV

Question 3

cost of inventories comprises of…

Answer 3

• purchase price
• conversion costs
• costs of bringing it to location
• costs of making it usable

Question 4

NRV is…

Answer 4

the estimated selling price less the estimated costs of completing the sale

Question 5

conversion costs are…

Answer 5

costs directly related to production

e.g., direct materials, direct labour

allocation of fixed / variable production overheads

Question 6

fixed production overheads?

Answer 6

indirect costs of production which remain constant

e.g., depreciation of buildings

Question 7

variable production overheads?

Answer 7

indirect costs of production which vary with the volume of production

e.g., indirect materials and labour

Question 8

if actual activity is less than normal, unallocated fixed overheads are recognised as…

Answer 8

an expense

not as part of the cost of inventories

Question 9

if actual activity is greater than normal activity…

Answer 9

the amount of fixed overhead allocated to each unit of production is decreased

Question 10

what is standard costing used for?

Answer 10

used if the results provide a reasonable approximation to cost

Question 11

two choices for asset valuations?

Answer 11

historical cost less revaluation

or

fair value

Question 12

if an item’s FV can be reliably measured…

Answer 12

it can be valued at its FV less any accumulated depreciation and accumulated impairment losses

Question 13

recoverable amount = ?

Answer 13

VIU/FV less selling costs