IAS 2

 IAS 2 –  Recognised as current assets in the SOFP  Held for sale in the ordinary course of business  Includes work-in-progress, finished goods & materials waiting to be used in production process

Par 6: Inventories are assets:  Held for sale in the ordinary course of business (finished goods)  In the process of production for such sale (work in progress) ; or  In the form of materials or supplies to be consumed in the production process or in the rendering of services (raw materials & consumables)

Par 9: Inventory shall be measured at the lower of cost and net realisable value Net realisable value < Costwrite down

Par 10: Cost of inventory shall comprise the following:  Cost of purchase (incl. transport inward & non- refundable taxes arising from acquisition);  Costs of conversion (eg. direct labour, depreciation of machinery, consumables & appropriate allocation of fixed and variable overheads); and  All other costs incurred in bringing the inventories to their present location and condition (eg. cost of designing a product for a particular customer)

Par 16: Amounts specifically excluded from cost:  Abnormal amounts of wastage  Storage costs  General administrative overheads; and  Selling expenses Recognised as expenses in I/S

Par 25: Cost of all inventory determined using either:  First-in-first-out (FIFO) cost formula  Weighted average cost formula ◦ Average calculated on period basis (over a certain) ◦ Average per shipment received Example – Ch.17 p.4

 Costs directly related to production ; eg. direct labour costs  Systematic allocation of fixed & variable production overheads incurred  Fixed overheads include the following: ◦ Factory supervisor’s wages ◦ Rent & rates of factory ◦ Depreciation & maintenance of factory equipment ◦ Factory heating, repairs, insurance, payroll costs, etc. Example 17.3 – pg. 5

IAS 12 par 13:  Allocation of fixed production overheads  Based on normal capacity of production facilities  Normal capacity = average number of units produced under normal circumstances  Actual < Normal Normal  Actual > NormalActual  Variable production overheads allocated based on actual use of production facilities Example 17.4 – pg. 7

 Valuation rule = lower of cost & net realisable value  Write down to NRV when expected realisable value < cost  NRV = Selling price (in the ordinary course of business) – completion costs - selling costs  Each inventory item written down on item by item basis, or groups of similar items not on classification basis  Estimates of realisable value based on most reliable evidence available

 Not normally written down to NRV  May be written down when as a result of decline of price in raw material or when the cost of finished goods > NRV  Replacement cost may be used as measure of NRV of raw material

 When inventories sold: ◦ recognise carrying amount as expense ◦ In period related revenue recognised  Write down of inventories: ◦ recognise loss/impairment as expense when it occurs  Reversal of write down ◦ Recognised in period it occurs

 Inventory as a separate line item in SOFP & further analysis in the notes  Cost of sales presented as a separate line item in I/S  Any expense (write-down; inventory losses) recognised in the I/S

 Accounting policy adopted in measuring  Cost formula (FIFO or WA)  SOFP & Notes thereto: ◦ Total carrying amount of inventory ◦ Classifications ◦ Inventories pledged as security for liabilities  I/S & Notes thereto: ◦ Inventories recognised as expense ◦ Write down of inventories & reversal (reduction of expense) ◦ Circumstances that led to the reversal of a write- down