THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI

Transcript:THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI:
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Thilanka Warnakulasooriya B.Com Special (Col), ACA, MBA Fin ( Col) POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2014/2015 Principles of Financial and Cost Accounting LKAS 2 INVENTORIES 3 LKAS 2 - Objective and Scope What costs are recognized as inventory costs and when these costs are transferred to the income statement as expense But excludes construction work-in-progress, inventories of financial instruments, and biological inventory assets related to agricultural activity and agricultural products at the point of harvest DEFINITIONS OF KEY TERMS Inventory. An asset that is 1. Held for sale in the normal course of business 2. In the process of production for such sale 3. In the form of materials or supplies to be used in the production process or in the rendering of services Net realizable value. The estimated selling price in the normal course of business less estimated cost to complete and estimated cost to make a sale. MEASUREMENT OF INVENTORIES Inventories are measured at the lower of cost and net realizable value (LC and NRV) LC and NRV example: Cost Rs 100 Selling price Rs 90 Cost to complete Rs 5 Cost to sell 10% of SP Measure the stock as per LKAS 2 COST OF INVENTORIES The cost of inventories comprises all 1. Costs of purchase 2. Costs of conversion 3. Other cost incurred in bringing the inventories to their present location and condition Costs of Purchase The costs of purchase constitute all The purchase price Import duties Transportation costs Handling costs directly pertaining to the acquisition of the goods Trade discounts and rebates are deducted when arriving at the cost of purchase of inventory Costs of Conversion of Inventory Direct labor, indirect variable and fixed production overhead costs Variable production overhead: allocate to inventory based on actual usage Fixed production overhead: allocate to production based on normal operating capacity (except when abnormally high production) Other Costs in Valuing Inventories Other Costs in Valuing Inventories Other costs in valuing inventories include those costs that are incurred in bringing the inventories to their present location and condition i.e costs of designing products for specific customer needs. Excluded Costs from Inventory Valuation Certain costs are not included in valuing inventory. They are recognized as expenses during the period they are incurred. Examples of such costs are 1. Abnormal amounts of wasted materials, labor, or other production costs 2. Storage