Accounting (Basics) - Lecture 6 Inventories. Contents Measurement of inventories Impairment of inventories Recognition as an expense Disclosures Oct 21,

Slides:



Advertisements
Similar presentations
Schedule of Cost of Goods Manufactured
Advertisements

Property, plant and equipment IAS 16
International Accounting Standard 2
Revenue recognition IAS 18 Revenue.
Accounting for Inventory By Sandhya Ghosh ( Pal ).
IAS 2 - INVENTORIES. 2 Objective and Scope OBJECTIVE: The objective of this Standard is to prescribe the accounting treatment for inventories. SCOPE:
Inventories: IAS 2. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA,
The Master Budget and Flexible Budgeting
Accounting Systems for Manufacturing Businesses Chapter 10.
Slide 10.1 Alan Melville, International Financial Reporting, 3rd Edition, © Pearson Education Limited 2011 Chapter 10 - INVENTORIES AND CONSTRUCTION CONTRACTS.
Absorption Costing and GAAP
◦ (a) The prior period's closing balances have been correctly brought forward to the current period or, when appropriate, have been restated; and ◦ (b)
IAS 16 Property, Plant and Equipment
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA
Rangajewa Herath B.Sc. Accountancy and Financial Management(Sp.)(USJ) MBA-PIM(USJ)
Inventory BROOKS REYNOLDS RUSSELL ENGLAND WAFA HINDIYEH.
Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 11 INVENTORIES.
Accounting for Intangible Assets
International Accounting Standard 1 Presentation of Financial Statements Yousef ElMudallal Part 2.
LACPA IFRS Presentation
1 Asset Valuation Inventories (HKSSAP 22) Valuation of Stock.
Chapter 6-1 CHAPTER 6 INVENTORIES Accounting Principles, Eighth Edition.
Valuation of Inventories
Principles of Cost Accounting 15 th edition Edward J. VanDerbeck © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Inventories- US Generally Accepted Accounting Principles (GAAP) vs
Ias 2 Inventories 1-Scope This Standard applies to all inventories other than Work in progress under construction contracts and directly related service.
IAS 2 INVENTORIES Orhan Balıkçı. Introduction The Standard prescribes the accounting treatment for inventories. The main issue with respect to accounting.
Stock. Definition Assets held for the ordinary cause of the business In the process of production for such sale In the form of materials or supplies to.
P.Ariyasena Chief Accountant Ministry of Foreign Employment Promotion and Welfare.
ACCOUNTING STANDARD -2 VALUATION OF INVENTORIES. PURPOSE PURPOSE Specifies the principals for valuing the inventory. Disclosure of the specific policies.
Chapter 9 Inventories.
7-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Australian Financial Accounting 5e by Craig Deegan Slides prepared by Craig Deegan Chapter.
Wiecek and Young IFRS Primer Chapter 7
Ind AS-2 INVENTORIES by CA, D.S.RAWAT Partner, BANSAL & Co.
Valuation of Inventories( AS-2) Purpose: To formulate the method of valuation of inventories on hand for Balance Sheet purposes. Inventories include: 1)Finished.
Inventories IAS 2. Slide 2 Overview of session 1. Introduction – scope and definitions 3. Recognition 4. Disclosure 5. Other Issues 2. Measurement.
7-1 PowerPoint slides to accompany New Zealand Financial Accounting 5e by Samkin Slides adapted by Bob Miller, © 2011 McGraw-Hill Australia Pty Ltd Accounting.
Chapter 6 Inventory. Copyright  2003 McGraw-Hill New Zealand Pty Ltd. PPTs t/a New Zealand Financial Accounting 2e by Deegan and Samkin Slides prepared.
Accounting (Basics) - Lecture 5 Impairment of assets.
IAS 2.  IAS 2 –  Recognised as current assets in the SOFP  Held for sale in the ordinary course of business  Includes.
Inventories.  Prescribes a/c treatment of inventories  Guidance in determining cost and  Subsequent recognition of expense including  Write-down to.
Accounting (Basics) - Lecture 3 Property, plant and equipment.
IAS 16.  Initially recognised at cost  Cost – amount of cash or cash equivalents paid or fair value of other consideration given to acquire asset 
Accounting (Basics) - Lecture 5 Lease. Contents Classification of leases Finance leases - financial statements of lessees and lessors Operating leases.
Financial Accounting II Lecture 11. Inventories First in First Out (FIFO) Last in First Out (LIFO) Specific identification of cost Weighted Average Methods.
IAS 2 Inventories SSAP 9 Mr. BarryA-level Accounting Year12.
Accounting for Intangible Assets 1 Rangajewa Herath B.Sc. Accountancy and Financial Management(Sp.)(USJ) MBA-PIM(USJ)
F Designed to give you the knowledge and application of: Section C: Financial Statements C1. Statements of cash flows C2. Tangible non-current.
VALUATION OF INVENTORIES
INTERNATIONAL ACCOUNTING STANDARDS (IAS) AND THE INTERNATIONAL FINANCIAL REPORTING STANDARD FOR SMALL AND MEDIUM-SIZED ENTITIES (IFRS FOR SMES)
INDIAN ACCOUNTING STANDARDS (IND AS) Damania & Varaiya 1.
The Institute of Chartered Accountants of India, New Delhi 1 Ind AS 2 - Inventories By Ind AS (IFRS) Implementation Committee The Institute of Chartered.
Accounting (Basics) - Lecture 5 Impairment of assets
Presentation of Financial Statements (LKAS 01)
Accounting (Basics) - Lecture 5 Lease
International Accounting Standard 16 Property, Plant and Equipment
IAS2 Inventory Definition
Lecture 08.
Property, plant and Equipments
Financial accounting: Session One
VALUATION OF INVENTORIES
Prepared by: Kamaruzzaman Abdul Rahim
INVENTORY VALUATION THEORY AND PRACTICE.
Manufacturing Cost Elements 1. Cost Concepts Cost refers the amount of expenses spent to generate product or services. Cost refers expenditure that may.
The Master Budget and Flexible Budgeting
Chapter 17 Inventories.
Inventories and construction contracts
Property, Plants and Equipment
IAS 2: Inventories.
Presentation transcript:

Accounting (Basics) - Lecture 6 Inventories

Contents Measurement of inventories Impairment of inventories Recognition as an expense Disclosures Oct 21, 20142

Measurement of inventories An entity shall measure inventories at the lower of cost and estimated selling price less costs to complete and sell. An entity shall include in the cost of inventories all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of purchase of inventories comprise the purchase price, import duties and other taxes, and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted from the costs of purchase. The costs of conversion of inventories include costs directly related to the units of production, such as direct labor. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, Oct 21, 20143

Measurement of inventories such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labor. An entity shall allocate fixed production overheads to the costs of conversion on the basis of the normal capacity of the production facilities. The actual level of production may be used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognized as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. Oct 21, 20144

Measurement of inventories A production process may result in more than one product being produced simultaneously (i.e. product and by-product). When the costs of raw materials or conversion of each product are not separately identifiable, an entity shall allocate them between the products on a rational and consistent basis. Most by-products, by their nature, are immaterial. When this is the case, the entity shall measure them at selling price less costs to complete and sell and deduct this amount from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost. An entity shall include other costs in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. Examples of costs excluded from the cost of inventories and recognized as expenses are abnormal amounts of wasted materials, labor or other production costs, storage costs, unless those costs are necessary during the production process before a further production stage etc. Oct 21, 20145

Measurement of inventories To the extent that service providers have inventories, they measure them at the costs of their production. These costs consist primarily of the labor and other costs of personnel directly engaged in providing the service, including supervisory personnel, and attributable overheads. Labor and other costs relating to sales and general administrative personnel are not included but are recognized as expenses in the period in which they are incurred. The cost of inventories of a service provider does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers. An entity may use techniques such as the standard cost method, the retail method or most recent purchase price for measuring the cost of inventories if the result approximates cost. Standard costs take into account normal levels of materials and supplies, labor, efficiency and capacity utilization. They are regularly reviewed and, if necessary, revised in the light of current conditions. The retail method measures cost by reducing the sales value of the inventory by the appropriate percentage gross margin. Oct

Measurement of inventories An entity shall measure the cost of inventories, other than costs of purchase, by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified. The last-in, first-out method (LIFO) is not permitted by this IFRS. Oct 21, 20147

Impairment of inventories An entity should assess at the end of each reporting period whether any inventories are impaired, i.e. the carrying amount is not fully recoverable (e.g. because of damage, obsolescence or declining selling prices). If an item (or group of items) of inventory is impaired, the entity is required to measure the inventory at its selling price less costs to complete and sell, and to recognize an impairment loss. Oct 21, 20148

Recognition as an expense When inventories are sold, the entity shall recognize the carrying amount of those inventories as an expense in the period in which the related revenue is recognized. Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are accounted for subsequently in accordance with the section of these IFRS relevant to that type of asset. Oct 21, 20149

Disclosures An entity shall disclose the following: a) the accounting policies adopted in measuring inventories, including the cost formula used. b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity. c) the amount of inventories recognized as an expense during the period. d) impairment losses recognized or reversed in profit or loss in accordance with Section “Impairment of Assets”. e) the total carrying amount of inventories pledged as security for liabilities. Oct 21,