INVENTORY

IAS 2

Why do we need to value inventory?

COGS (P/L)
Inventory (SFP)

Inventory
Processing
System:

Periodic vs
Perpetual
Inventory
Cost Flows:

Specific
Identification
or
FIFO, LIFO,
WeightedAverage

Cost of
Goods
available
for Sale

Cost of
Goods
Sold
(COGS)
Inventory
Valuation:
Ending
Inventory

Lower of Cost
and Net
Realisable
Value

Definition of Inventory
Inventory

Trading

Merchandise

Manufacturing

Raw Materials

Work-inProgress

Finished
Product

Periodic vs Perpetual Inventory Systems

Periodic

Perpetual

Periodic

Perpetual

Tan Soon Huat:

Dr Purchases E+
Cr Cash A- /Payables L+
[Purchase of inventory]

Dr Inventory A+
Cr Cash A- /Payables L+
[Purchase of inventory]

Periodic

Perpetual

Tan Soon Huat:

Dr Cash/Receivables A+
Cr Sales I+
[Sale of inventory]

Dr COGS E+
Cr Inventory ADr Cash/Receivables
Cr Sales
[Sale of inventory]

Periodic
Tan Soon Huat:

COGS = OI + P CI
Dr COGS / (P/L)
Cr Inventory
[Transfer Opening Inventory to
P/L]

Dr Inventory (as per stocktake)

Cr COGS / (P/L)
[Record Closing Inventory as per
stocktake]

Perpetual

Fundamental
Principle of IAS 2:
LOWER OF:

Cost

Interchangeable
Items

FIFO
First-In-First-Out

AVCO
Average Cost
(weighted)

Net Realisable
Value
(NRV)
Noninterchangeable
Items

Specific
Identification

Determining Inventory Costs

Include all expenditures necessary to bring an item to
a saleable condition and location.
Conversion
cost (if
manufactured)

Invoice
Cost

Manufacturing
Overheads
Import
Duties /
Taxes

Delivery /
Freight

Storage of
raw
materials
and WIP

Cost should NOT include

abnormal waste e.g. damaged items
administrative overheads unrelated to

production
selling costs
storage costs of finished goods

Fundamental
Principle of IAS 2:
LOWER OF:

Cost

Interchangeable
Items

FIFO
First-In-First-Out

AVCO
Average Cost
(weighted)

Net Realisable
Value
(NRV)
Noninterchangeable
Items

Specific
Identification

Inventory cost is calculated using specific identification basis for gemset jewellery and watches, and weighted average for other inventories.

Inventories comprise merchandise held for resale. High-end

inventories are stated at the lower of cost (specific identification
method) and net realisable value. Low-end inventories are stated at
the lower of cost (weighted average method) and net realisable value.
Inventories are measured at the lower of cost and net realizable value.
Cost comprises all costs of acquisition, transformation and other costs
incurred in bringing the inventories to their present location and
condition . . . Cost is calculated on a FIFO basis and includes the cost
of materials consumed, labour and manufacturing expenses.
The Company values inventories at the lower of cost or market as
determined primarily by the last-in, first-out (LIFO) method for
substantially all of the Walmart U.S. segments inventories. The
Walmart International segments inventories are primarily valued using
the first-in, first-out (FIFO) method.

Fundamental
Principle of IAS 2:
LOWER OF:

Cost

Interchangeable
Items

FIFO
First-In-First-Out

AVCO
Average Cost
(weighted)

Net Realisable
Value
(NRV)
Noninterchangeable
Items

Specific
Identification

Prudence Concept

Cost

NRV

Choose the LOWER value

Net Realizable Value

Estimated Selling Price

Less:
Trade Discounts
Estimated costs to completion

Estimated marketing, selling and distribution cost

When do we need to apply this?

When we suspect that the goods are damaged or
obsolete.

Page 112 (a)

Valuation $8 978
Includes Obsolete goods cost $750
Scrap value $300
Transport Goods $75
Cost $750 >

NRV $225

Inventory Valuation = 8 978 525

= $8 453

Page 112 (b)

Valuation $24 750
Slow moving items $3 800 will be offered for sale at 20%

discount
Cost $3 800 >

NRV $3 040

Inventory Valuation = 24750 760

= $23 990