Inventories

IAS 2
• Inventories
Definition
• Inventories include assets held for sale in the ordinary course of
business (finished goods), assets in the production process for sale in
the ordinary course of business (work in process), and materials and
supplies that are consumed in production (raw materials)
Definition
• Inventories include assets held for sale in the ordinary course of
business (finished goods), assets in the production process for sale in
the ordinary course of business (work in process), and materials and
supplies that are consumed in production (raw materials)
Classes of inventory
• Merchandising

• Manufacturing
Classes of inventory
• Merchandising
Merchandise Inventory
• Manufacturing
Finished Goods
Raw materials
Work in process
Manufacturing Over head
Inclusion
• Perform legal test
Inclusion
• Perform legal test
• Goods owned and on hand
• FOB Destination and sold in transit
• FOB Shipping point purchased and in transit
• Goods out on consignment
• In the hands of Salesman/Agent
• Held by customer on approval or on trial
Inclusion
• Perform legal test Perspective natin is seller

• Goods owned and on hand

• FOB Destination and sold in transit Perspective natin is Buyer

• FOB Shipping point purchased and in transit

• Goods out on consignment Perspective natin is Consignor

• In the hands of Salesman/Agent Yan yung mga Sample

• Held by customer on approval or on trial
Inclusion
• Perform legal test
• Goods owned and on hand
• FOB Destination and sold in transit
• FOB Shipping point purchased and in transit
• Goods out on consignment
• In the hands of Salesman/Agent
• Held by customer on approval or on trial
• Exception on legal test Installment Sales (Law VS Accounting)
Except om legal test Installment Sales (Law VS Accounting)

• Sa Installment sales yan ay example ng conditional sale diba?

• Hindi natratransfer sa buyer ang property until he fully pay the price
diba?
• Recognize sale and deffered income
• But in accounting we recognize substance over form so installment
sales is exempted on the legal test.
Presentation In Balance sheet
• Presented as (current assets) Inventories in the balance sheet

if you are a manufacturing business

Raw materials
Work in process
Manufacturing Over head
Will be presented separately on the notes to the financial statement
as Disclosure
Accounting For inventories
Accounting For inventories
• Periodic system
• Perpetual System
Accounting For inventories
• Periodic system No tracking of inventory movement
• Perpetual System Inventories are perpetually updated
Accounting For inventories
• Periodic system Large Amount Low Volume Products
• Perpetual System Low Amount Large Volume Products
Inventory Shortages
• Normal shortages
• Abnormal shortages
Inventory Shortages
• Normal shortages Charged to Cost of Goods Sold
• Abnormal shortages Charged to other expenses
Discounts
• Trade Discount
• Cash Discount
Discounts
• Trade Discount Encourages customer to buy more
• Cash Discount Encourages customer to pay early
Discounts
• Trade Discount Encourages customer to buy more (not recorded)
• Cash Discount Encourages customer to pay early (Recorded)
Methods of Recording Purchases
• Gross method

• Net Method
Methods of Recording Purchases
• Gross method (eto yung ginagamit natin) pero it violates matching principle daw
record purchases gross of discount
• Net Method
record purchases net of discount
Measurement
• Initial Measurement

• Subsequent Measurement
Measurement
• Initial Measurement
At cost
• Subsequent Measurement
NRV
Measurement
•  Inventories should be measured subsequently at the lower of cost,
and net realizable value
Initial Measurement at cost
• Cost of Purchase
Purchase price, import duties( tax),irrevocable taxes, Freight, handling Cost
• Cost of Conversion

• Other Cost directly attributable of bringing the inventory to location

Initial Measurement at cost
• Cost of Purchase (Cash Basis)
Purchase price, import duties( tax),irrevocable taxes, Freight, handling Cost
• Cost of Conversion

• Other Cost directly attributable of bringing the inventory to location

Initial Measurement at cost
• Cost of Purchase (Deferred Settlement) Recognize interest expense
Purchase price, import duties( tax),irrevocable taxes, Freight, handling Cost
• Cost of Conversion

• Other Cost directly attributable of bringing the inventory to location

Initial Measurement at cost
• Cost of Purchase (Cash Basis)
Purchase price, import duties( tax),irrevocable taxes, Freight, handling Cost
• Cost of Conversion
DM + DL + FOH
• Other Cost directly attributable of bringing the inventory to location
Exclusion to cost of inventory
• Abnormal amounts of waste
• Storage Cost Unless necessary to the production process prior to the
next production stage (product Cost)
• Administrative expenses
• Marketing expenses
• Delivery expenses