Week 3 Flashcards
What are the types of inventories?
Inventories are stocks of goods.
Manufacturing
- Raw materials
- Work in progress
- Finished products
Retailer
- Goods for resale
What financial regulation lays out the required accounting treatment of inventories?
IAS 2
What is the inventory cycle?
Opening inventor
Goods bought
Goods sold
Stock count
Closing inventor
What are the IAS 2 inventories?
Manufacturing
- Finished goods
- Work in progress
- Raw materials
Retailer / Wholesale
- Goods purchased and held for resale
How does IAS 2 define inventories?
IAS 2 defines inventories as assets:
Held for sale in the ordinary course of business
In the process of production for such sale
In the form of materials or supplies to be consumed in the production process or in the rendering of services
How are inventories measured in IAS 2?
IAS 2 states that inventories should be measured at the lower of cost and net realisable value.
Net realisable value = the estimated selling price in the ordinary course of the business less the estimated costs of completion and the estimated costs necessary to make the sale.
What is the cost of inventory?
Cost of inventories comprise all costs of purchase, conversion and other costs incurred in bringing the inventories to their present location and condition.
Give examples of cost of inventory.
Purchase =
Purchase price
Import duties
Less trade discounts
Conversion =
Direct materials / labour
Fixed variable production overheads
Other costs =
Location / condition
What costs are NOT included in cost of inventories?
Abnormal wastage
Storage costs
Administrative overheads
Selling costs
What are the cost formulas?
Cost of inventories should be assigned by a formula:
FIFO (first in first out)
AVCO (weighted average cost)
LIFO (last in first out) NOT ALLOWED by IAS 2
