5. Definition:-
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.
7. Cost of inventories
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.
8. continued---
Costs of purchase includes:-
• purchase price
• Import duties and other taxes
• Transport, handling
• Other costs less:- Trade discounts & rebates
10. continued
Examples of costs excluded from the cost of
inventories and recognized as expenses in the period
in which they are incurred are:
(a) abnormal amounts of wasted materials, labor or
other production costs;
(b) storage costs, unless those costs are necessary in
the production process before a further production
stage;
12. Cost formulas
Specific Identification
FIFO
Weighted Average
N.B:- Use the same cost formula for all inventories
having a similar nature and use to the entity.
13. Net realizable value
NRV = Estimated S.P less costs to sell
General Rule:- assets should not be carried in excess
its recoverable amount.
Reasons for NRV becomes lower than the cost:-
1. Damage/ obsolescence
2. Falling in selling price
3. Increase in cost of completion
14. Recognition as an expense
When inventories are sold, the carrying amount of
those inventories shall be recognized as an expense in
the period in which the related revenue is recognized.
The amount of any write-down of inventories to net
realizable value and all losses of inventories shall be
recognized as an expense in the period the write
down or loss occurs.
15. Disclosure
The financial statements shall disclose:-
(a) the accounting policies adopted in measuring
inventories, including the cost formula used;
(b) the total carrying amount of inventories
(c) the carrying amount of inventories carried at fair
value less costs to sell;
16. continued
(d) the amount of inventories recognized as an
expense during the period;
(e) the amount of any write-down of inventories
recognized as an expense in the period
