The cost of inventories should be assigned using either the first-in first-out or weighted average cost method. IAS 2 requires that inventories are measured at the lower of cost and net realisable value. Inventory is treated as current assets of the entity. Preview text. 5.4 Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition [IAS 2.15]. This is consistent with the way IAS 16 requires the carrying amounts of property, plant and equipment and inventories to include costs of future dismantling, removal and site restoration, which are accrued over time as construction of the relevant property, plant and equipment and inventories progresses [IAS 16.18]. Employer & Candidate. INVENTORIES ARE MEASURED AT THE LOWER OF COST AND NET REALISABLE VALUE (NRV) (This is … Please visit our global website instead, Can't find your location listed? These standards were applied annually from January 1, 2005. According to IAS 2, inventories must be stated at the lower of cost and NRV. ACCA F7 IAS 2 Inventories. Addresses requirements of IAS 2, Inventories. ... IAS 2 FRS 102 Section 10; myACCA Platform outage on Friday - official ACCA response >> IAS 2 Inventories – CIMA F1 Financial Reporting. (c) completed premium housing and affordable housing that is for sale. According to IAS 2, the cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. 4.5 In other cases, it would be appropriate to group the affordable housing with other inventories, for example, when affordable housing and premium housing are parts of a wider development master plan for a particular geographical area. This e-learning course is part of an e-learning series designed by PwC Academy Hungary which aims to provide a comprehensive overview of the application of IFRS (IAS) standards to finance and accounting experts who are already familiar with fundamental (local) accounting and reporting processes. Correspondingly, as construction progresses, those costs would be accrued as a provision under IAS 37. The change of name to Inventories occurred in 1993. 3.1 IAS 2 defines inventories as 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 [IAS 2.6]. The objective of this standard is to prescribe the accounting treatment for inventories. Solution Example 2 . Technical Areas. Inventories - IAS 2. - this article explains whether the item shall be presented as an inventory or a property, plant and equipment How to Account for Free Assets Received under IFRS - if you ever received free inventories as a gift or in some other transaction, here's the guidance on how to account for them. This includes: Cost of purchase – material costs, import duties, freight. During this engagement we need to identify accounting treatments, specify cost of inventory, identify cost formula, calculation of NRV. To find out more, see our Cookies Policy Terms & Conditions Articles. These would include costs that the developer has no choice but to incur in order to ensure the premium housing can be constructed, such as: (a) the costs of public infrastructure; and. CIMA F1 lectures Download F1 notes Spread the word. 4.7 Similar to the shortfall on affordable housing, the cost of constructing the public infrastructure is an inventory cost that is necessarily associated with constructing premium housing and needs to be allocated under IAS 2.12. IAS 2 allows the use of First in First out (FIFO) and Weighted Average Cost method. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot be practicably evaluated separately from other items in that product line. Acowtancy. Syllabus B. Outlining the acceptable methods of determining cost, including: - specific identification; - first-in first-out (FIFO); and - weighted average cost. BY-PRODUCTS. 5.10 If, for example, the developer is publicly committed to a master plan that involves constructing 250 premium houses, typically a relevant portion of the costs of constructing the public infrastructure would be included in all the premium housing inventories, not just the last 150 premium houses. IAS 2 provides that an entity should use the same cost formula for all inventories having similar nature and use to the entity. IAS 2 – Inventories Quiz Free IFRS Quizzes IAS 2 – Inventories Quiz ) , () ) Back to Course Next Lesson. To the extent that the relevant premium housing inventories are still assets of the developer, they would be written down for the relevant portion of the public infrastructure cost included in their carrying amounts [IAS 8.38]. The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. That is, from the perspective of costing premium housing inventory, public infrastructure is much like assets made with the sole purpose of facilitating the construction of premium housing. IAS 2 requires inventories to be measured at the lower of cost and net realisable value. This site uses cookies. Please spread the word so more students can benefit from our study materials. It superseded the earlier SIC-1 Consistency-Different Cost Formulas for Inventories. Previous Next. Technical Areas. Classroom Revision Mock Exam Buy $199. Furthermore, in the context of this example, when the equipment is used to produce inventories, the costs of dismantling and removing that equipment or restoring the site on which it is located are accounted for under IAS 2 and, when relevant, included among the costs incurred to produce inventories [IAS 16.18]. LKAS 2 / IAS 2 - Inventories standard for ICASL, AAT, CMA, ACCA, CIMA, A/L and all the academic and professional courses. This site uses cookies. Question: Selling Amazing Chocobar. To the extent that the premium housing inventories had already been sold, there would be an immediate adjustment to profit or loss [IAS 8.37]. 5.7 If, for example, the public infrastructure is constructed before the premium housing, the public infrastructure construction costs would be recognised as costs attributable to premium housing inventories as soon as they are incurred. F1. ACCA Study Options; ACCA Student Fees; ACCA Timetables ; How to start ACCA; ACCA Accelerate Programme; Foundation in Accountancy; ICB; Contact Us; Online Courses; Register Now! 5.5 Development permission might be granted on the basis that the developer agrees to construct public infrastructure and/or affordable housing: (a) before it constructs premium housing; (b) at the same time that it constructs premium housing; and/or. Measurement Inventories shall be stated at the lower of cost and net realisable value. The main issues are the determination of the cost of inventory and Net Realizable Value, its subsequent accounting treatment, and the guidance on the cost formulas for the valuation of inventories. IAS 2 – Inventories Quiz Free IFRS Quizzes IAS 2 – Inventories Quiz ) , () ) Back to Course Next Lesson. IAS 2 Inventories prescribes the accounting treatment for inventories. Accounting requirements relating to inventories are specified in the IAS 2 Inventories standard. Notes Quiz Objective Test. As the net realisable value is lower than cost, these items must be included in the financial statements at their net realisable value of £4,800. The accounting treatment will depend on the facts in each case. Donate. Login; Select Page. IAS 2 - Inventories Topic summary provided by PwC, giving latest developments and overview, a summary of … Formula like FIFO or Weighted Average cost method, issues occasionally arise about how IAS 2 does not using... 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