Recognition and measurement of Inventories

1. MPERS 13
INVENTORIES
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
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2. Recognition & Measurement
 Held for sales
 In the process of production for sales
 In the form of materials or supplies to be consumed in the
process of production or in rendering of service.
Inventories are assets :
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

3. Recognition
This section applied to all inventories, except for
 WIP arising under construction contract (Section 23 Revenue)
 Financial instrument ( Section 11 Basic Financial instrument, Section
12 Other Financial instrument Issues )
 Biological assets and agricultural produce ( Section 34 Specialized
activities)
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

4. Example
1. A vintner processes grapes harvested from its vineyards into wine in a three-year
production cycle.
 From the point of harvest until the bottled wine is derecognised by the vintner, the
grapes are inventory. They are material in the process of production for sale.
 Up to the point of harvest the vintner’s grapes are not inventory—they are
biological assets accounted for in accordance with paragraph 34.2.
19/11/2018
MPERS 34
Biological asset
MPERS 13
Inventories
MPERS 13
Inventories

5.  Agricultural produce after harvest, minerals, to the extent
that they are measured at fair value less cost to sell
 Commodity brokers and dealers that measure their
inventories at fair value less cost to sell.
This section does not apply to measurement of inventories
held by
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first obtaining
professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
Measurement

6. Measurement of inventories
At lower of cost and estimated selling price less cost
to sell
© Copyright of KTP & THK Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

7. Cost of inventories
 Cost of purchase
 Cost of conversion
 Other cost incurred in bringing the inventories to their
present location and condition.
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first obtaining
professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents
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8. Cost of inventories
Cost of purchase
© Copyright of KTP & THK Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Purchase price, import duties and other taxes (other than those
subsequently recoverable by the entity from tax authority), transport,
handling and other cost directly attributable to the acquisition of
finished goods, material and service.
 Trade discounts, rebates are deducted in determining the cost of
purchase.
 Deferred settlement terms are excluded from cost of purchase.

9. Cost of inventories
Cost of conversion
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obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Costs directly related to the units of production, such as
direct labour.
 Systematic allocation of fixed and variable production
overheads that are incurred in converting materials into
finished goods.

10. Cost of inventories
Allocation of production overhead
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 Fixed production overheads - remain relatively constant regardless of
the volume of production.
 Variable production overheads - vary with the volume of production.
 Based on the normal capacity of the production facilities.
 Unallocated overheads are recognised as an expense in the period in
which they are incurred.

11. Case study – Cost of conversion
19/11/2018
The financial accounting records are used to determine
the overhead cost, and this is applied as a percentage
based on the direct labour cost.

12. Cost of inventories
Joint product and by-product
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Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 A production process may result in more than one product being
produced simultaneously.
 Each product are not separately identifiable, they are allocated
between the products on a rational and consistent basis.
 Most by-products, by their nature, are immaterial.
 they are measured at net realisable value and this value is deducted
from the cost of the main product.

13. Cost of inventories
Other cost
© Copyright of KTP & THK Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 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.
Cost excluded from inventories
 Abnormal amounts of wasted materials, labours or other
production cost.
 Storage cost, administrative overhead, selling cost.

14. Techniques of measuring cost
Standard cost
 normal levels of materials and supplies, labour, efficiency and
capacity utilisation.
 They are regularly reviewed and, if necessary, revised
Retail method
 Often used in the retail industry for measuring inventories of large
numbers of rapidly changing items with similar margins for which it is
impracticable to use other costing methods.
 Cost of inventory = Sales Value – Percentage of gross margin
© Copyright of KTP & THK Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

15. Cost formula
19/11/2018
FIFO
 First in first out (FIFO)
assumes that the items of
inventory that were
purchased or produced
first are sold first, and
consequently the items
remaining in inventory at the
end of the period are those
most recently purchased or
produced.

16. Cost formula
19/11/2018
Weighted average
 Weighted Average means the
cost of each item is determined
from the weighted average of the
cost of similar items at the
beginning of a period and the
cost of similar items purchased
or produced during the period.

17. Cost formula
 The cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and segregated for
specific projects shall be assigned by using specific identification of
their individual costs
 An entity shall use the same cost formula for all inventories having a
similar nature and use to the entity.
 Last in first out ( LIFO) are not permitted by this standard.
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FIFO and Weighted average
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first
obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

18. Impairment of Inventories
 Paragraph 27.2-27.4 require an entity to assess at the
reporting date whether any inventories are impaired.
 by comparing the carrying amount of each item of inventory
(or group of similar items—see paragraph 27.3) with its
selling price less costs to complete and sell.
 That reduction is an impairment loss and it is recognised
immediately in profit or loss.
© Copyright of KTP & THK Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this publication without first obtaining
professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.

19. Indicator of impairment
 No market value / declining of selling price - Subsequent sales, NRV
testing
 Obsolesces ( necessary to write off) – inquiry management
 Slow moving item – inquiry management
 Subject to market changes – antiques & etc.
19/11/2018

20. Disclosure
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obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and responsibility to any person in reliance in whole or any part of this contents.
 The accounting policies adopted in measuring inventories, including
the cost formula used.
 The total carrying amount of inventories and the carrying amount in
classifications appropriate to the entity.
 The amount of inventories recognised as an expense during the
period.
 Impairment losses recognised or reversed in profit or loss in
accordance with Section 27.
 The total carrying amount of inventories pledged as security for
liabilities.

21. The end 