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INVENTORIES IAS 2
Inventories -are assets 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 in the rendering of services.
Measurement of Inventories Inventories shall be measured at the lower cost and net realizable value. The cost of inventories shall comprise all cost of purchase, cost of conversion and other cost incurred in bringing the inventories to their present location and condition.
Net Realizable Value - is defined as the expected selling price in the ordinary course of business minus the cost of completion, disposal, and transportation.
Inventory Estimation 1. Gross Profit Method It is used to estimate inventory from accounting records without taking physical count. Ending inventory = Cost of good sold – computed cost of sales Computations: Gross Profit based on Sales: Net Sales x Cost Ratio Gross Profit based on Cost: Net Sales / Sales Ratio
2. Standard Costing Standard cost take into account normal levels of materials and supplies, labor, efficiency and capacity utilization.
Materials are recorded at standard prices and labor and overhead are charged at work in process at standard rate.
3. Retail Method The cost of inventory is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. Cost Ratio = Goods available for sale at cost / Goods available for sale at sales price Ending inventory = Ending inventory at retail price x Cost ratio Approaches of Retail Method Average method – consist both net markup and net markdown in the calculation of cost ratio. Conservative method – includes net markup but excludes net markdown. FIFO method – considered both net markup and net markdown but excludes beginning inventory in the calculation of cost ratio.
Disclosure The accounting policies that were adopted in measuring inventories, including the cost formula used; The total carrying amount of inventories and the carrying amount in classifications that are appropriate to the entity; The carrying amount of inventories that are carried at fair value less the costs to sell; The amount of inventories that are recognized as an expense during the reporting period; The amount of any write-down of inventories that are recognized as an expense in the reporting period; The amount of any reversal of any write-down that is recognized as a reduction in the cost of sales during the reporting period;
The circumstances or events which have led to the reversal of a writedown of inventories; and The carrying amount of inventories that are pledged as security for liabilities.
Inventories -are assets 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 in the rendering of services.
Measurement of Inventories Inventories shall be measured at the lower cost and net realizable value. The cost of inventories shall comprise all cost of purchase, cost of conversion and other cost incurred in bringing the inventories to their present location and condition.
Net Realizable Value - is defined as the expected selling price in the ordinary course of business minus the cost of completion, disposal, and transportation.
Inventory Estimation 1. Gross Profit Method It is used to estimate inventory from accounting records without taking physical count. Ending inventory = Cost of good sold – computed cost of sales Computations: Gross Profit based on Sales: Net Sales x Cost Ratio Gross Profit based on Cost: Net Sales / Sales Ratio
2. Standard Costing Standard cost take into account normal levels of materials and supplies, labor, efficiency and capacity utilization.
Materials are recorded at standard prices and labor and overhead are charged at work in process at standard rate.
3. Retail Method The cost of inventory is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. Cost Ratio = Goods available for sale at cost / Goods available for sale at sales price Ending inventory = Ending inventory at retail price x Cost ratio Approaches of Retail Method Average method – consist both net markup and net markdown in the calculation of cost ratio. Conservative method – includes net markup but excludes net markdown. FIFO method – considered both net markup and net markdown but excludes beginning inventory in the calculation of cost ratio.
Disclosure The accounting policies that were adopted in measuring inventories, including the cost formula used; The total carrying amount of inventories and the carrying amount in classifications that are appropriate to the entity; The carrying amount of inventories that are carried at fair value less the costs to sell; The amount of inventories that are recognized as an expense during the reporting period; The amount of any write-down of inventories that are recognized as an expense in the reporting period; The amount of any reversal of any write-down that is recognized as a reduction in the cost of sales during the reporting period;
The circumstances or events which have led to the reversal of a writedown of inventories; and The carrying amount of inventories that are pledged as security for liabilities.
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