TOPIC Primary objectives:

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IAS 2 ‐ INVENTORIES • The objective of IAS 2 is to prescribe the accounting treatment for
inventories.
• It provides guidance for determining the cost of inventories and for
subsequently recognising an expense, including any write-down to net
realisable value.
• It also provides guidance on the cost formulas that are used to assign
costs to inventories.

Contents
INTRODUCTION

1. Introduction • The accounting for inventories is a major consideration for

2. Definitions of Terms many entities because of its significance on both the
statement of profit or loss (cost of goods sold) and the
3. Recognition and Measurement statement of financial position (inventories).

4. Methods of Inventory Costing Under IAS 2 • Inventories are defined by IAS 2 as assets that are:

5. Examples of Financial Statement • . . . held for sale in the ordinary course of business; in the
process of production for such sale; or in the
6. Disclosures
• form of materials or supplies to be consumed in the
7. US GAAP Comparison production process or in the rendering of services

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 Definitions of Terms
Scope

RECOGNITION AND MEASUREMENT RECOGNITION AND MEASUREMENT

Exchange Rate Differences

Include

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Methods of Inventory Costing Under IAS 2

Exercice 1 : FIFO
The following example illustrates the basic principles involved in
the application of FIFO:

LIFO is not
permitted under
IAS 2
Compute these data : the cost of goods sold and the ending
inventory balance

Exercice 2 : Weighted-Average Cost

Solution 1
Given these data, the cost of goods sold and the ending inventory balance are
determined as follows:

Required : 1.The weighted-average cost ?

2. Cost of Ending inventory?;
3. cost of goods sold

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 Disclosure Requirements
Net Realisable Value 1. The accounting policies adopted in measuring inventories, including
the costing methods (e.g., FIFO or weighted-average) employed.
2. The total carrying amount of inventories and the carrying amount
As stated in IAS 2: in classifications appropriate to the entity.
3. The carrying amount of inventories carried at fair value less costs to
•Net realisable value is the estimated selling price in sell (inventories of commodity broker-traders).
the ordinary course of business less the estimated
costs of completion and the estimated costs 4. The amount of inventories recognised as an expense during the
necessary to make the sale. period.

The practice of writing inventories down below cost to 5. The amount of any write-down of inventories recognised as an
expense in the period.
net realisable value is consistent with the view that
assets should not be carried in excess of amounts 6. The amount of any reversal of any previous write-down that is
recognised in profit or loss for the period.
expected to be realised from their sale or use
7. The circumstances or events that led to the reversal of a write-
write down vs write off down of inventories to net realisable value.
8. The carrying amount of inventories pledged as security for liabilities.

US GAAP COMPARISON CHƯƠNG 1. TỔNG QUAN VỀ KẾ TOÁN QUỐC TẾ

The last-in, first-out cost method (LIFO) is permitted under US

GAAP

US GAAP does not permit write-backs of previously recognised If you have

write-downs to net realisable value
any
US GAAP does not require recognition in interim periods of question,
inventory losses from market declines that reasonably can be
expected to be restored in the fiscal year.
please feel
free to ask…
US GAAP does not require that an entity use the same formula
for all inventories of a similar nature and with a similar use to
the entity.

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 9/3/20XX 19

THANK YOU
IAS 2-
IFRS

QUESTION

Question 1 Question 2
Which of the following is allowed as a cost of inventory? Which of the following items are excluded from the scope of IAS 2 –
Inventories?
a) Abnormal waste
a) Agricultural produce at the point of harvest
b) Storage costs
b) Inventories that are stated at Net Realisable Value
c) Selling costs
c) Assets held for sale in the ordinary course of business
d) Variable manufacturing overheads
d) Inventories whose fair value is more than the cost
e) General administration overheads

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 Question 3 Question 4
Which of the following costs are not included while computing the cost of Any amount of write-down of inventories to net realisable value should
purchase? be…

a) Purchase Price a) Treated as a deferred expense and written off based on the average
inventory holding period
b) Recoverable taxes b) Recognised as an expense in the period in which the write-down
c) Import duties occurs
c) Recognised as an expense in the subsequent period in which such
d) Shipping costs write-down is warranted
d) Recognized as a current liability in the Balance Sheet

Question 5
Sticky Corp manufacturers and sells adhesive warning signs for workplaces. The
stock of signs was included in the closing inventory as of 31 December 20x1 at a
cost of $50 per pack.
During the final audit the auditors noted that the subsequent selling price for the Question 6
inventory at 15th January 20x2 was $40 per pack. Furthermore, inquiry reveals
that during the physical stock take, a water leakage has damaged the signs and Inventory should be measured at the lower of cost and _____
glue. Accordingly in the following week, Sticky Corp spent a total of $15 per pack a) Fair value
for repairing and reapplying the glue to the signs.
b) Market value
The net realizable value and inventory write-down (loss) amount to…
c) Net realisable value
a) $40 and $10 respectively
d) Present value
b) $25 and $25 respectively
c) $35 and $25 respectively
d) $30 and $15 respectively

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 Question 7 Question 8
Which of the following costs must be expensed under IAS 2? Under IAS 2, fixed production overheads should be allocated to items of
inventory on the basis of ____________ production capacity.
a) Costs of purchase that are paid to the suppliers of raw materials
a) Actual
b) Import duties on raw materials that are paid to the authorities
b) Normal
c) Variable production overheads that are allocated to each unit based
on actual usage c) Abnormal
d) Selling and distribution overheads incurred in the ordinary course of d) Estimated
business

Question 9
Question 10
Shaw & Co., imported raw materials from China worth $100,000. They paid
$8,000 as import duties and $2,000 as import taxes (the import taxes were Zippy Machines is in the business of procuring a specific type of machine
subsequently refunded by the local government). They paid $15,000 for and sells them to international markets. During the year, the Company
transportation of the materials from China and another $2,000 as port handling bought four machines costing $120,000, $140,000, $130,000 and $100,000
charges for loading the materials at China. respectively.

Marketing expenses were $1,000 and the general administrative overheads During the year it sold only one machine for $140,000 and follows the FIFO
amounted to $2,000. What will be the value of inventories as per IAS 2? method of valuation. Which of the following statements is TRUE?

a) $127,000 a) The cost of Inventory is $370,000 and the cost of sales is $100,000

b) $125,000 b) The cost of Inventory is $390,000 and the cost of sales is $140,000

c) $128,000 c) The cost of Inventory is $370,000 and the cost of sales is $120,000

d) $130,000 d) The cost of Inventory is $370,000 and the cost of sales is $490,000

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Question 11 Question 12
• IFR. Ltd is known as a new international trading business. Owners starts to run
Julii Ltd. a new business enters to the market, uses a package software to calculate
their business in 20X1.IFR. Ltd imports products from Europe and sells in the
local market. Business uses the FIFO method to value its inventory. This the cost as well as value of inventory. The weighted-average cost method is applied
following information are the purchases and sales made by IFR. Ltd during the by this software.
year 20X1: The below information examines the purchases and sales of Julii Ltd during 20X1
(there are no beginning inventory):

Required
Required Compute the value of Julii Ltd. inventory and the cost per unit of the inventory at
Based on the FIFO cost flow assumption, compute the value of inventory in the end
April 30, 20X1, October 30, 20X1, and December 31, 20X1, under the weighted-
of December 20X1?
average cost method.

Question 13 Question 14

Chichi Inc. is a manufacture of Australia furniture company and has these Slingshot Corporation purchased inventory on January 1, 20X1, for $600,000. On
major product lines: sofa, dining table, bed, closet, and lounge chair. At the end December
of 20X1, the statistic of Chichi Inc is as following: 31, 20X1, the inventory had an NRV of $550,000. During 20X2, Slingshot sold the
inventory
for $620,000. Based on the above, which of the following statements is true?:
a. The December 31, 20X1, balance sheet reported the inventory at $600,000.
b. The December 31, 20X1, balance sheet reported the inventory at $620,000.
c. When the inventory was sold in 20X2, Slingshot reported a $20,000 gain on its income
statement.
d. For the year ending December 31, 20X1, Slingshot recognized a $50,000 loss on its
income statement.
Required
Under IAS 2, compute the valuation of the inventory of Chichi Inc. at December 31,
20X1,

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Question 15 Question 16

The financial statements of Parra Imports for 20X0 and 20X1 had the The following information applies to the Grady Company for the current year:
following errors:

Grady’s inventory costs for the year would be:

By what amount will the 20X0 and 20X1 pretax profits be overstated or a. $297,000 b. $300,000 c. $304,500 d. $316,500
understated if these errors are not corrected?

Question 17

An entity has a current ratio greater than 1.0. If the entity’s ending inventory is
understated by $3,000 and beginning inventory is overstated by $5,000, the entity’s
net income and the current ratio would be: