Presenttation about the IAS 02 - INVENTORY which is issued by IASB

1. IAS 02
INVENTORY
Presented by: Nguyen Huy

2. OVERVIEW – IAS 2
01Objective & Scope
02Measurement
03Recognition
04Disclosure
05Comparision

3. OBJECTIVE & SCOPE
WORK IN
PROGRESS
FINISHED
GOOD
Held for sale
RAW
MATERIALS
.
INVENTORY
ASSETS

4. OBJECTIVE & SCOPE
Inventories
of financial
instruments
( IAS 32 )
Construction
contract WIP
( IAS 11 )
Biological
inv related to
agriculture
( IAS 41 )
.
INVENTORY
IAS 2
EXCLUDE

5. W
W
H
What cost are included ?
Which cost formulars are
permitted ?
How NRV is determined ?
NEED
TO
KNOW
MEASUREMENT

6. Conversioncosts
Purchasecosts
Other
costs
COSTS
INCLUDED
MEASUREMENT

7. Purchasecosts
COSTS
INCLUDED
Less
trade
discount
s,
rebates,
subsidie
s
Purchas
e
Price
Transpor
t
Handlin
g
Import
Duties,
Taxes
Less
foreign
exchange
differences
(IAS 21)
MEASUREMENT

8. COVERSION COST
Direct Labour Fixed production
overhead
Variable production
overhead
MEASUREMENT

9. COVERSION
COST
Variable production
overhead
Fixed production
overhead
Characteristics
change according to
changes in the level of
activity or volume.
Don’t change
significantly with the
level of production
Examples
Indirect materials,
Indirect labour and other
variables costs such as
electricity, office supplies
Plant property taxes,
Office and factory
rent, insurance, etc..
Allocation to
Inventory
Based on actual usage
Based on the normal
operating capacity.
MEASUREMENT

10. JOINT PRODUCT
Two or more outputs generated simultaneously,
by a single manufacturing process using common
input, and being substantially equal in value.
Joint products are separately unidentifiable, and
incur undifferentiated joint costs, until they
reach the split-off point.
So how to allocate Joint
cost ?

11. JOINT PRODUCT
- When products become
separable, they will be
allocated between rational
and consistent basis such
as relative sales value of
products
- If small in value, do not
allocate: Measure by-
product at NRV and
deduct this amount from
main product costs.

12. OTHER INVENTORIABLE
COSTS
MEASUREMENT
- Include those costs that are used in
bringing inventories to their present
location and condition
- Example: non production overheads or
cost of designing products for specific
customers.
- Borrowing cost: in some specific
conditions (interest) can be included in
inventory costs.

13. Abnormal wastes
Financing charges
Above purchase price
for nomal credit term
Storage & Warehouse
Unless nesscessary for
next stage of Production.
Adminstrative overheads
Not associated with production.
Selling costs
MEASUREMENT
DON’T
ADD
TO
INVENTORY
COSTS
Of materials, labour or
other production cost

14. MEASUREMENT
Which of the above cost categories do the following costs belong
to?
Cost Cost categories
Selling cost
Direct labour
Design of finished goods
Import duties on raw material
Fixed production overhead
Purchase of raw material
Abnormal amount of wasted material

15. MEASUREMENT
Which of the above cost categories do the following costs belong
to?
Cost Cost categories
Selling cost Excluded
Direct labour Conversion
Design of finished goods Other
Import duties on raw material Purchase
Fixed production overhead Conversion
Purchase of raw material Purchase
Abnormal amount of wasted material Excluded

16. 01
02
Standard Cost
Method
used for accounts of
normal level of materials,
supplies, labours,
efficiency and capacity
Retail inventory
Method
used in retail industry for
measuring large number of
rapidly changing items.
cost is determined by reducing
the sales value of inventory by
percentage gross margin.
MEASUREMENT TECHNIQUES

17. Cost Formulas
Specific
Identification
- Not interchangeable
inventory
- For specific projects
- Inappropriate when
there are large
number of items that
are changeable
FIFO
cost of latest purchases
ends up in cost of ending
inventory, cost of
earliest purchases are in
cost of goods sold.
Weighted
Average
weighted average cost of
all goods available for
sale ends up in
both ending goods
available for sale and
cost of goods sold
- Assign recent cost to ending inventories
- 3 types of cost fomulas used depending upon the nature of inv
Same nature of inventories => same cost formulas

18. • PRINCIPLE
Inventories are measured at the
lower of cost and net realizable
value ( LC and NRV )
MEASUREMENT
How are the inventories
measured ?
NRV Cost

20. MEASUREMENT
• NRV is the estimated selling price of items in business
less than the estimated costs of completion and and
estimated costs of sale
Expected
selling
price
Cost to
complete
item for
sale
Cost to
sale
Net
realizable
value
- - =
The adjustment to NRV is usually applied on
an item-to-item basis

21. Product
Unit on
hand
Original cost
per unit
Estimated
cost to sale
Expected
selling price
101 10 $40 $15 $60
102 20 $60 $20 $75
The December 31, 2015 inventory of Fteam Company
consists of two product: 10 units of 101 and 20 units of
102. Before adjustment, the cost and carrying amount of
the total inventory is $1,600
Determine the amount of inventory to report on the Dec
31, 2016 Balance sheet and Prepare any necessary
adjusting entry
Example

22. Product
Original
cost per
unit (a)
Net Realizable
Value (b)
Lower
of (a) &
(b)
Units
on
hand
Inventory at
LC and NRV
101 $40
$60 – $15 =
$45
$40 10 $400
102 $60
$75 – $20 =
$50
$50 20 $1,000
Adjusting entry:
Inventory Loss – LC and NRV 200
Inventory 200
To write inventory down to the lower cost and net reliable value:
$1,600 - $1,400 = $200
Solution

23. Example
Assume that 10 units of inventory product 102
from the example above remain in inventory at
31 April 2016. The cost to sell each unit is still
$20, but the market has recovered for these
items and their expected selling price is now $90.
What adjusting entry, If any, is needed at 31 April,
2016

24. REVERSALS
The NRV of inventory is
reassessed at each
financial reporting date
Further reduction
Reverve previous
writedowns

25. REVERSALS
Reversals
(recognized in P & L)
The situation that caused
the previous write down
no longer exits
Clear evidences due to
changed economic
circumstances
=> NRV has increased

26. Solution
Product Cost NRV
LC and
NRV
Quantity
Inventory at LC
and NRV
102 $60 $70 $60 10 $600
Carrying amount before
adjustment
$50 10 $500
Writedown reversal needed $100
Adjusting entry:
Inventory 100
inventory lost recovered - LC and NRV 100
To adjust inventory for recovery in NRV

27. Recognition
- Inventory is a current asset
- Inventory is expensed (COGS)…….
when the related revenue is recognized……
- Inventory adjustments (losses, writedowns to LC and
NRV, writedown revesals, etc.) are recognized as an
adjustments to the expense which recognized in the
period.

28. DISCLOSURE
Accounting policies applied
• Identify cost formula used (FIFO or Weighted average)
• Cost components
• Valuation (LC or NRV)
Balance sheet
• Carrying amount in each category of inventory
• Carrying amount of any inventory measured at fair
value less costs to sell
• Carrying amount of inventory pledged as collateral for
liabilities
Income statement
• Cost of inventories expensed in period
• Amount of writedowns to NRV or other losses
• Amount of any writedown reversals
• Circumstances that resulted in reversals

29. Comparision
Inventory should be measured at the lower of cost
or net realizable value.
Cost should be assigned using the FIFO or
weighted average cost methods.
LIFO is an alternative treatment.
When the cost of inventories is determined using
the LIFO method, the financial statements should
disclose the difference between the amount of
inventories as shown in the balance sheet and the
amount which would have been shown if prepared
in accordance with FIFO or weighted average cost
methods.
A provision for the decline in the value of inventory
can be recorded if there is an apparent evidence of a
continuous decline in the market value of such
inventory.
Goods issued can be valued under any of following
methods:
1. Specific identification
2. Weighted average method
3. FIFO
4. LIFO
Inventory is defined as assets:
1. held for sale in the ordinary course of business
2. in the process of the production for such sale;
or
3. in the form of materials or supplies to be
consumed in the production process or in the
rendering of service
Inventory is defined as current assets that include:
1. Goods in transit
2. Raw materials
3. Tools and supplies
4. Work in progress
5. Finished goods
6. Merchandises
7. Goods on consignment
IAS VAS

30. Comparision
IAS VAS
The allocation of fixed production
overheads to the cost of conversion is
based on the normal capacity of the
production facilities
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.
Unpredictable idle cost is transferred
to the Prepayments account.

31. Comparision
IAS VAS
The allocation of fixed production
overheads to the cost of conversion is
based on the normal capacity of the
production facilities
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.
Unpredictable idle cost is transferred
to the Prepayments account.

32. CHÂN THÀNH CẢM
ƠN
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