inventories ias 2. slide 2 overview of session 1. introduction – scope and definitions 3....
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Inventories 1. Introduction – scope and definitionsTRANSCRIPT
Inventories
IAS 2
Slide 2
Overview of session
1. Introduction – scope and definitions
3. Recognition
4. Disclosure
5. Other Issues
2. Measurement
Inventories
1. Introduction – scope and definitions
Slide 4
Scope of IAS 2
Covers all inventories other than:
WIP under construction contracts
Financial instruments (Not in IGAAP)
Agricultural and forest products (Not in IGAAP)
Mineral ores and biological assets to the extent they are measured at NRV (IFRS excludes only measurement of inventories)
Commodity broker traders when measured at fair value less costs to sell
Additionally, IGAAP exempts WIP of service providers also
Slide 5
Definitions
Inventories are assets:
- (a) held for sale in the ordinary course of business;
- (b) in the process of production for such sale; or
- (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services
Slide 6
Inventories
Measured at lower of :
Cost and Net Realisable Value
Raw Materials Work in Progress Finished Goods
Slide 7
NRV vs Fair value
NRV is entity specific value, Fair value is not
NRV may not equal fair value less costs to sell
Inventories
2. Measurement
Slide 9
Net Realisable Value
Selling Price X
Trade Discounts (X)
Costs to Completion (X)
Marketing, Selling and Distribution Costs (X)
Net Realisable Value X
Net Realisable Value
The estimated selling price in the ordinary course of
business less the estimated costs of completion and
estimated costs necessary to make the sale
Slide 10
Cost
Cost of Purchase
OtherCosts
Cost of Conversion
Cost of Production:
Slide 11
Cost Formulas
Specific identification
Benchmark Treatment:• First in First Out (FIFO) formula• Weighted Average Cost formula
Slide 12
Use of cost formula
Same cost formula for all inventories having a similar nature and use to the entity
Inventories with a different nature or use, different cost formula may be justified
IGAAP does not provide any specific guidance
Slide 13
Deferred settlement terms
Financing element i.e. difference between purchase price for normal credit terms and the amount paid is recognised as interest expense over the period of financing.
IGAAP does not specify this treatment
Inventories
3. Recognition
Slide 15
Recognition
Inventory is expensed……when the related revenue is recognised
The expense of a write down to NRV is recognised……when the write down occurs
Reversal of write down when• Circumstances that caused write down no longer exist• Increase in NRV due to changed economic circumstances
IGAAP does not provide above guidance
Inventories
4. Disclosures
Slide 17
Disclosures in IGAAP and IFRS
Accounting policies including the cost formula
Total carrying amount
Carrying amount in appropriate classifications
Slide 18
Additional disclosures in IFRS
Carrying amount of inventories carried at fair value less costs to sell
Amount of inventories recognised as expense during the period
Amount of write down recognised
Amount of reversal of write down
Circumstances or events that led to reversal of write down
Carrying amount pledged as security for liabilities
Inventories
5. Other Issues
Slide 20
Service providers
Para 8 specify that in case of service providers, inventories include the cost of services
Para 19 provides guidance on cost of inventories of service provider. Measured at cost of production. Does not include non attributable overheads even though included into price charged by service providers.
Para 29 provides guidance on determination of NRV for service providers. Each service for which a separate selling price is charged is treated as a separate item.
Slide 21
Machinery spares
Guidance now contained in AS 10 Accounting for fixed assets
Slide 22
Thank You