Editorial Note Related commentary and examples in Navigate IFRS Accounting Issue date IAS 2 Inventories (2003) was originally issued in December 2003, effective from 1 January 2005. All effective amendments
issued since that date are reflected in the text of the standard. Detailed editorial notes set out the history of major amendments. Key amendments The standard incorporates the following amendments that are already effective: •IFRS 16 Leases (January 2016), effective for annual reporting periods beginning on or after 1 January 2019; •IFRS 9 Financial Instruments (July 2014), effective for annual reporting periods beginning on or after 1 January 2018; To subscribe to this content, simply call 0800 231 5199 We can create a package that’s catered to your individual needs. Or book a demo to see this product in action. KAii Magno Guia 0% found this document useful (0 votes) 4K views 11 pages Auditing Problems Project-
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The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determining the cost of inventories and for subsequently recognising an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. Inventories include assets held for sale in the ordinary course of business (finished goods), assets in the production process for sale in the ordinary course of business (work in process), and materials and supplies that are consumed in production (raw materials). [IAS 2.6] However, IAS 2 excludes certain inventories from its scope: [IAS 2.2]
Also, while the following are within the scope of the standard, IAS 2 does not apply to the measurement of inventories held by: [IAS 2.3]
Inventories are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9] Cost should include all: [IAS 2.10]
IAS 23 Borrowing Costs identifies some limited circumstances where borrowing costs (interest) can be included in cost of inventories that meet the definition of a qualifying asset. [IAS 2.17 and IAS 23.4] Inventory cost should not include: [IAS 2.16 and 2.18]
The standard cost and retail methods may be used for the measurement of cost, provided that the results approximate actual cost. [IAS 2.21-22] For inventory items that are not interchangeable, specific costs are attributed to the specific individual items of inventory. [IAS 2.23] For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost formulas. [IAS 2.25] The LIFO formula, which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed. The same cost formula should be used for all inventories with similar characteristics as to their nature and use to the entity. For groups of inventories that have different characteristics, different cost formulas may be justified. [IAS 2.25] NRV is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. [IAS 2.6] Any write-down to NRV should be recognised as an expense in the period in which the write-down occurs. Any reversal should be recognised in the income statement in the period in which the reversal occurs. [IAS 2.34] IAS 18 Revenue addresses revenue recognition for the sale of goods. When inventories are sold and revenue is recognised, the carrying amount of those inventories is recognised as an expense (often called cost-of-goods-sold). Any write-down to NRV and any inventory losses are also recognised as an expense when they occur. [IAS 2.34] Required disclosures: [IAS 2.36]
IAS 2 acknowledges that some enterprises classify income statement expenses by nature (materials, labour, and so on) rather than by function (cost of goods sold, selling expense, and so on). Accordingly, as an alternative to disclosing cost of goods sold expense, IAS 2 allows an entity to disclose operating costs recognised during the period by nature of the cost (raw materials and consumables, labour costs, other operating costs) and the amount of the net change in inventories for the period). [IAS 2.39] This is consistent with IAS 1 Presentation of Financial Statements, which allows presentation of expenses by function or nature. Which should not be taken into account when determining the cost of inventory?Do not add any administrative or selling costs to the cost of inventory. The costs that can be included in an inventory valuation are direct labor, direct materials, factory overhead, freight in, handling fees, and import duties.
What is not included in the cost of inventory?Storage cost is not included in the cost of inventory.
Which of the following should be taken into account when determining the cost of inventories?In Inventory 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) including depreciation of factory plant.
Which of the following costs are included in the cost of inventories?The cost of inventories shall comprise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
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