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IAS 2 - Inventories - Coggle Diagram
IAS 2 - Inventories
Definitions
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Consist of:
Raw Material (RM)
Material that will be used in the production process to convert Raw Material to Finished Goods to sell in the principle activity of the business.
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Finished Goods (FG)
the ordinary course of the business is that we are purchasing and selling goods as the company's main principal activity.
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Fair Value
It is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date.
Reflects the price at which an orderly transaction to sell the same inventory in the principal market for that inventory would take place betweenparticipants at the measurement date.
Assets
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In the form of materials or supplies to be consumed in the production process or in the rendering of services
Cost of Formulas
The cost of inventories shall be assigned using the First-In First-Out (FIFO) or Weighted Average Cost (AVCO) Formula.
An entity shall use the same cost formula for all inventories having a similar nature and just to the entity.
For inventories with different nature and use, different cost formulas may be justifiable.
The cost of inventory items should be ascertained "by using specific identification of their individual costs"
FIFO - assumes that inventory items which are purchased or produced first are sold or used first, so that the items remaining at the end of an accounting period are those recently purchased/produced
AVCO - involves computing a new weighted average cost per item after each acquisition takes place. The cost is then calculated by using the most recently-computed weigthed average cost per item.
LIFO IS NOT ALLOWED
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A specific costing approach which reflected the physical flow of items in these circumstances would not be ruled out purely because it gave similar results to LIFO
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