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    International Accounting Standard With Examples

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    Amna Mirza
    This document summarizes IAS 2 on inventories. It defines inventories as assets held for sale, in production for sale, or materials used in production. Inventories must be measured at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and costs to bring inventories to their present location/condition, but excludes abnormal waste, storage costs, selling costs, and most financing costs. Certain inventories like work-in-process for construction contracts and biological assets are excluded from the standard's scope.

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    International Accounting Standard With Examples

    Uploaded by

    Amna Mirza
    143 views15 pages
    This document summarizes IAS 2 on inventories. It defines inventories as assets held for sale, in production for sale, or materials used in production. Inventories must be measured at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and costs to bring inventories to their present location/condition, but excludes abnormal waste, storage costs, selling costs, and most financing costs. Certain inventories like work-in-process for construction contracts and biological assets are excluded from the standard's scope.

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    A comprehensive learning aid on the topic of inventories. slides

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    International Accounting Standard with examples

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    This document summarizes IAS 2 on inventories. It defines inventories as assets held for sale, in production for sale, or materials used in production. Inventories must be measured at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and costs to bring inventories to their present location/condition, but excludes abnormal waste, storage costs, selling costs, and most financing costs. Certain inventories like work-in-process for construction contracts and biological assets are excluded from the standard's scope.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    143 views15 pages

    International Accounting Standard With Examples

    Uploaded by

    Amna Mirza
    This document summarizes IAS 2 on inventories. It defines inventories as assets held for sale, in production for sale, or materials used in production. Inventories must be measured at the lower of cost or net realizable value. Cost includes purchase costs, conversion costs, and costs to bring inventories to their present location/condition, but excludes abnormal waste, storage costs, selling costs, and most financing costs. Certain inventories like work-in-process for construction contracts and biological assets are excluded from the standard's scope.

    Copyright:

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    Download as ppt, pdf, or txt
    of 15

    Inventories

    IAS 2

    Objective
    The objective of this standard is to prescribe the accounting treatment for inventories.

    Scope
    IAS 2 excludes certain inventories:
    work in process arising under construction contracts (see IAS 11 Construction Contracts)

    financial instruments (see IAS 39 Financial Instruments: Recognition and Measurement)


    biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41 Agriculture).

    Definitions
    Inventories are assets:
    Held for sale in ordinary course of business In the process of production for such sales Material or supplies used in production process or to render services

    Net Realizable Value


    It is the estimated selling price less the cost to complete and sell

    Measurement of inventory
    Inventory should be measured at lower of cost or net realizable value

    Realisable value
    Realisable value is, of course, the price the organisation receives for its inventory from the market. However, getting this inventory to market may involve
    additional expense and effort in repackaging, advertising, delivery and even repairing of damaged inventory.

    Which Value you should assign to inventory?


    Item Cost (Rs) Net realisable value (Rs.)
    9,000 1 No. 876 7,000

    2 No. 997 12,000

    12,500

    3 No. 1822 8,000

    4,000

    Cost of inventories
    Cost should include all:

    costs of purchase (including taxes, transport, and handling) net of trade discounts received
    costs of conversion (including fixed and variable manufacturing overheads) and

    other costs incurred in bringing the inventories to their present location and condition

    Costs not to be included in the inventory cost


    Abnormal losses of material, labor etc

    Storage costs
    Administrative overheads that are not to bring the inventories at present location or condition Selling costs Borrowing costs (with some exceptions) foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency

    Techniques of measurement of cost


    Standard cost method Retail method

    Cost Formulas
    Items which are not ordinarily interchangeable should be valued at individual cost basis FIFO and treatment WAVC are benchmark

    LIFO is no longer allowed

    Recognition as an expense
    The inventory cost should be recognized as an expense in the period in which their revenue is recognized

    Disclosure
    Policy to measure inventories including cost formula Total carrying amount of inventory with classification Carrying amount of inventory carried at net realizable value The amount of any reversal of any write-down of inventory that is recognized as revenue in the period The circumstances and events that have caused this reversal

    Carrying amount of inventories pledged as security against a liability

    Activity
    1. Value the following items of inventory:
    Material costing $12,000 bought for processing and assembly for a profitable special order. Since buying these items, the cost price has fallen to $ 10,000

    Equipment constructed for customer for an agreed price of $ 18,000. This has recently been completed at a cost of $ 16,800. It has now been discovered that , in order to meet certain regulations, conversion with an extra cost of $ 4,200 will be required. The customer has accepted partial responsibility and agreed to meet half the extra cost.

    Practise Question
    Q1. The cost of inventories held by Bonus Ltd. is Rs. 350,000. The estimated selling price of inventories is Rs. 300,000. The company pays Rs. 5% commission on sales to manager. You are required to calculate the value at which inventories should appear in the Statement of Financial Position.

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