Ovido
Language
  • English
  • Spanish
  • French
  • Portuguese
  • German
  • Italian
  • Dutch
  • Swedish
Text
  • Uppercase

User

  • Log in
  • Create account
  • Upgrade to Premium
Ovido
  • Home
  • Log in
  • Create account

FAR Inventory

Which three activities consist

Operating, investment, financing

In which activity belongs Inventory

Investment activity

Definition of inventories according to IAS 2

Finished goods, work in progress, raw materials

Inventories are assets: (3)

1. Held for sale
2. In the process of production

3. Raw materials or supplies to be consumed in the production

Where is inventory further explained?

IAS 2

What are the recognition criteria for inventory (2):

1. There are no specific recognition criteria for inventory in IAS 2
2. General recognition criteria from the conceptual framework are important

What are the recognition criteria for PPE (2):

1. probable future economic benefits
2. reliable measurement of costs

Intitial recognition of inventory is conducted in (2):

1. cost of purchase
2. cost of conversion

Cost of purchase consist of (4):

1. Purchase price
2. Dirrectly attributable costs (import duties, taxes, transport costs, handling costs)

3. - trade discount

4. Borrowing costs

Cost of conversion consist of (4)

1. Direct costs of material and labor
2. Indirect costs of production (variable and fixed costs)

3. Other costs

4. Borrowing costs

What is not included in costs or purchase and conversion:

Wasted materials, storage costs, administrative overheads, selling costs

Excluded costs (4)

1. abonormal amount of waste materials
2. storage costs, unless necessary in the production process before a furthur production stage

3. administrative overheads that do not contribute to bringing inventoris to their present location and condition

4. selling costs

Impairment of inventory

1. Estimated selling price
- costs of completion (production costs)

- selling costs

Impairment of inventory exeption

Materials held for use in the production are not written down below cost if the finished products are expected to be sold at or above costs

Inventories are measured at

lower of cost and net realizable value

Acquisition costs consist of (4)

1. Purchase costs
2. Construction costs

3. Costs of dismantling and remvoing the asset and restoring the site

4. Borrowing costs as part of an asset costs

Purchase costs (3)

1. Purchase price (less discounts or rebates)
2. Import duties / other taxes

3. Directly attributable costs

Construction / convertion costs (2)

1. Costs directly related to the units of production
2. Systematically allocatable fixed and variable production overheads

Measurement at fair value unless...

1. Transaction has no commercial substance; or
2. The fair values are not reliably measurable

IAS 2 applies to all inventories except for (2)

1. Financial instruments
2. Biological assets

Assets are current assets if (4)

1. Asset is realised in the entity's normal operating cycle
2. Asset is being traded

3. Realise the asset within 12 months

4. Cash or cash equivalent

Definition of operating cycle:

the time between the acquisition of assets for processing and their realisation in cash or cash equivalents

Accounting for inventory in 4 steps:

1. Initial recognition of inventory
2. Recording of inventory transactions (periodic or perpetual inventory methods)

3. Assignment of costs to inventory (FIFO or weighted average)

4. Measurement subsequent to initial recognition

If the purpose of acquiring or manufacturing inventory items is to sell them at a profit, inventory will initially be recognised at ...

costs

When purchase costs on short term contain a financing element ...

the difference must be recognised as interest expense over the period

Other costs of inventory can included only if ...

they are ‘incurred in bringing the inventories to their present location and condition’

Borrowing costs such as interest are included in the cost of inventories, but only ...

where such inventories are a qualifying asset; that is, one which ‘takes a substantial period of time to get ready for its intended use or sale’

The costs of supervisory personnel and directly attributable overheads may also be included, but the inclusion of labour and other costs relating to sales and general administrative personnel is...

prohibited

Profit margins or non-attributable overheads that are built into the prices charged by service providers...

cannot be included into the cost of inventories.

Definition of the standard costs method

a ‘standard’ cost of materials, direct and indirect labour and overheads for each product based on normal levels of efficiency and capacity utilisation.

Definition of the retail method

used to measure inventories of large numbers of rapidly changing items with similar margins for which it is impractical to use other costing methods.

When using the retail method, costs are determinded by

reducing the sales value of the inventory by an appropriate percentage gross margin or an average percentage margin

There are two main methods of accounting for inventory:

the periodic method and the perpetual method

Under the periodic method

the amount of inventory is determined periodically (normally annually) by conducting a physical count and multiplying the number of units by a cost per unit to value the inventory on hand

Definition of perpetual method:

Under the perpetual method, inventory records are updated each time a transaction involving inventory takes place

What does FOB mean?

Free On Board

FOB shipping basis

Goods belong to the purchaser from the time they are shipped

FOB destination basis

Goods belong to the entity until they arrive at the customer's premises

Definition of a consignment arrangment / inventory

An agent (the consignee) agrees to sell goods on behalf of the consignor on a commission basis. Legal ownership remains with the consignor until the agent sells the goods to a third party.

IAS 2 addresses two different rules for the assigning of costs to sold inventory items

1. If the inventory held consists of items that can be individually identified then the exact cost of the item sold must be recorded as cost of sales expense
2. If not, FIFO or weighted average cost formula will be used

Which formula to use?

The weighted average method is easy to apply and is particularly suited to inventory where homogeneous products are mixed together, like iron ore or spring water.
The FIFO method may be a better reflection of the actual physical movement of goods, such as those with use-by dates to avoid obsolescence, spoilage or legislative restrictions.

Changes in accounting policies are allowed only when (2)...

1. required by an accounting standard, or
2. where the change results in reporting more relevant and reliable financial information.

Net realisable value is...

the net amount that an entity expects to realise from the sale of inventory in the ordinary course of business

Estimating net realisable value consist of (3)

1. Expected selling price
2. Estimated costs of completion

3. Estimated selling costs

When the sale of finished goods is not expected to recover the costs, ...

then materials are to be written down to net realisable value

Inventories are usually written down to net realisable value on an

item-by-item basis

If the circumstances that previously caused inventories to be written down below cost change, or if a new assessment confirms that net realisable value has increased, ...

the amount of a previous write-down can be reversed

IAS 2 requires the following items to be recognised as expenses:

1. Carrying amount of inventories in the period in which the related revenue is recognised, in other words, cost of sales
2. Write down of inventories to net realisable value and all lossses

3. Reversals of write downs to net realisable value

required disclosures relating to inventories:

inventories on hand will need to be classified into categories

Quiz
LOIRE
Radioactivity
pnf3 - kopia
Weimar and Nazi Germany History
NYA ZEELAND
pnf3
Volcano
Volcanoes
😭
Sammansatta joner
kemi syror och baser
hff
sj judet onsdag
CHAPTER 2: ALFRED ADLER: Individual Psychology
10-42 sWs
IR french verbs
ER french
INTRODUCTION QUIZ IN TOP
CHAPTER 1: SIGMUND FREUD PSYCHOANALYSIS
buss
vocabulary
Hebrew
Modalities
History (20th Century)
pedagogia
introduction
2.2
History (1800s)
RullMat DIZEL
Literary Terms A
2.1
1.1
catabolismo
metabolismo y catabolismo
metabolismo y catabolismo
UE7- intro à l'histoire de la médecine
instuderingsfrågor
Upper Extremity
Matematiktentamen
Essential
MRI
history 5
History (The Renaissance)
History (Medieval Period)
espagnolo facil n°2
Fortnite
nytt mag o tarm test 3
english
enlish
socials exam pt 2