IAS 2 Inventories | International Accounting | International Financial Reporting Standards I
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- čas přidán 1. 07. 2024
- IN this video, I discuss IAS 2 inventories. IAS 2 provides guidance for determining the cost of inventories and the subsequent recognition of the cost as an expense, including any write-down to net realisable value. IAS 2 defines inventories as assets which are: held for sale in the ordinary course of business, in the process of production for such sale, or. in the form of materials or supplies to be consumed in the production process or rendering of services.
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INVENTORIES
IAS 2, Inventories, is an example of an International Accounting Standard that provides more extensive guidance than U.S. GAAP, especially with regard to inventories of service providers and disclosures related to inventories. IAS 2 provides guidance on determining the initial cost of inventories, the cost formulas to be used in allocating the cost of inventories to expense, and the subsequent measurement of inventories on the balance sheet.
The cost of inventories includes costs of purchase, costs of conversion, and other costs:
Costs of purchase include purchase price; import duties and other taxes; and transportation, handling, and other costs directly attributable to acquiring materials, services, and finished products.
Costs of conversion include direct labor and a systematic allocation of variable and fixed production overhead. Fixed overhead should be applied based on a normal level of production.
Other costs are included in the cost of inventories to the extent that they are incurred to bring the inventories to their present location and condition. This can include the cost of designing products for specific customers. Under certain conditions, interest costs are allowed to be included in the cost of inventories for those items that require a substantial period of time to bring them to a salable condition.
Costs that are expressly excluded from the costs of inventories are:
Abnormal amounts of wasted materials, labor, or other production costs.
Storage costs, unless they are necessary in the production process prior to a further stage of production.
Administrative overhead that does not contribute to bringing inventories to their present location and condition.
Selling costs.
IAS 2 does not allow as much choice with regard to cost formulas as does U.S. GAAP. First-in, first-out (FIFO) and weighted-average cost are acceptable treatments, but last-in, first-out (LIFO) is not. The standard cost method and retail method also are acceptable provided that they approximate cost as defined in IAS 2. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects must be accounted for using the specific identification method. An entity must use the same cost formula for all inventories having a similar nature and use to the entity, even if they are located in different geographical locations. For inventories with a different nature or use, different cost formulas may be justified. U.S. GAAP does not require use of a uniform inventory valuation method for inventories having a similar nature. It is common for U.S. companies to use different methods in different jurisdictions for tax reasons-for example, LIFO in the United States and FIFO or average cost elsewhere.
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Hi Mr. Farhat, i just started listening to your lecture last night and its really full pack of knowledge, this channel is highly recommended ..
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Thanks a lot for posting the updated information. I'm currently working on the case and this video is very helpful.
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I love your classes, you are excellent teacher.
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This will help me a lot with my financial accounting test
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Helpful, I watch the ads fully... you deserve it
Thank you so much 😀
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Very Helpful - Thank You.
Do we assume the same inventory in next reporting period also ? What if the price goes up to 1100?
thanks for you lecture, it is very useful
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Hi Prof,
was wondering what it means that IAS 2 allows standard cost method?
let's say for a manufacturer, does it mean that cost transferred to COGS when the particular inventory is sold is computed based on standard cost (computed at the date of sale) rather than the cost recognised for that particular inventory when it was manufactured and accordingly, transferred to COGS using the FIFO method?
was hoping you could also make a video with regards to the linkage between standard cost method and the cost flow assumption
dr farahat what is the meaning of compelet cost in the inventoey assessment are you mean any direct materials or lamor or overhrad ? i think all costs i mentioned is included in historical cost .
Thanks sir for this amazing effort, will you complete IFRS course sir??
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Just a confusion tho, why should we consider NRV when the replacement cost is lower than that? 18:00
Shouldn’t we take the RC as the inventory cost, and reverse the loss by 70?
It's really helpful
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Thak you prof, i am thinking of doing CPA
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What about the Finance cost on the loan taken to bought raw material etc.. will that form part of the inventory cost?
Take a look at IAS 23, no..
Thanks you Sir
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Wonderful
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do you have a video of landed cost and clearing account?
not sure about the term.
thnk u prof. i would like to ask u my critical example and i confused so i wnt u to solve which is INVENTORY VALUATION : a company has an inventory on hand at the end of the reporting period as follows
UNITS RM COST FOH SELLING COST EXPECTED SP
1 .ITEMS 300 160 15 12 185
2. ITEMS 250 50 10 10 75
required
@ at what amount will inventories be stated in the statement of financial position in acordance with IAS 2?
can u make a video on import inventory