Inventory IAS_2

Inventory in IAS 2:

Inventory:
The raw materials, work-in-process appurtenances and absolutely accomplished appurtenances that are advised to be the allocation of a business's assets that is accessible or will be accessible for sale.

Objectives of IAS 2:

Provide advice about the accounting analysis for inventories. It provides advice about inventories in afterward ways
When account is purchased, how it should be recorded
When account should be recorded as an expense
Scope:
The afterward 3 types of inventories are included in IAS 2
o Accomplished goods
o Plan in process
o Raw material
The afterward inventories are not included in IAS 2
o Plan in action arising beneath architecture contracts
o Financial instruments e.g. shares and bonds
o Biological assets accompanying to agronomical action and agronomical aftermath at the point of autumn e.g. beasts and crops
Fundamental Principle of IAS 2:
Inventories are appropriate to be declared at the lower of bulk and net accessible bulk (NRV).

Measurement of Inventories:

Cost should cover all:
costs of acquirement (including taxes, transport, and handling)
costs of about-face i.e. labour and overhead
other costs incurred in bringing the inventories to their present area and condition
Note:
In some affairs borrowing bulk is aswell included in bulk of inventory
The afterward bulk is not included in the account cost;
· Abnormal waste
· Storage costs
· Administrative FOH different to production
· Affairs costs
· Foreign barter differences
· Interest bulk if inventories are purchased with deferred adjustment terms

Cost Formulas:

· Items which are not commonly changeable should be admired at alone bulk basis.
· For changeable items FIFO and Weighted Average Bulk methods are used.
Write-Down to Net Accessible Value:
· NRV is the estimated affairs bulk in the accustomed advance of business, beneath the estimated bulk of achievement and the estimated costs all-important to accomplish the sale.
· Any write-down to NRV should be accustomed as an bulk in the aeon in which the write-down occurs.
· Any changeabout should be accustomed in the assets account in the aeon in which the changeabout occurs.
Expense Recognition:
IAS 18 Revenue:
When inventories are awash and acquirement is recognized, the accustomed bulk of those inventories is accustomed as an expense.
[IAS 2.34]
Any write-down to NRV and any account losses are aswell accustomed as an bulk if they occur.
Disclosure
accounting action for inventories
Carrying amount, of merchandise, supplies, materials, plan in progress, and accomplished goods.
carrying bulk of any inventories agitated at fair bulk beneat

Ajusting entries

Adjusting Entries

Adjusting entries are account entries fabricated at the end of the accounting aeon to admeasure acquirement and costs to the aeon in which they in fact are applicable. Adjusting entries are appropriate because accustomed account entries are based on absolute transactions, and the date on which these affairs action may not be the date appropriate to accomplish the analogous assumption of accretion accounting.

Types of Adjusting Entries:

The two above types of adjusting entries are:

· Accruals: for revenues and costs that are akin to dates afore the transaction has been recorded.

· Deferrals: for revenues and costs that are akin to dates afterwards the transaction has been recorded.

1. Accruals:

Accrued items are those for which the close has been acumen acquirement or amount after yet celebratory an absolute transaction that would aftereffect in a account entry

· Example:

Some accrued items for which adjusting entries may be fabricated include:

· Salaries Payable

· Interest Payable

· Income Tax Payable

· Unbilled Revenue

· Account Entry:

Salaries Expense……………….. Dr.

Salaries Payable………………… Cr.

2. Deferrals

Deferred items are those for which the close has recorded the transaction as a account entry, but has not yet accomplished the acquirement or amount associated with that account entry.:

· Examples:

Some deferred items for which adjusting entries would be fabricated include:

Prepaid insurance

Prepaid rent

Office supplies

Depreciation

Unearned revenue

· Account Entry:

Prepaid Insurance………………. Dr.

Insurance Expense………………. Cr.

Cash flow statement

The statement which show flow of cash (inflow and outflow). In the business during accounting period is called cash flow statement.

Introduction of cash flow statement.

Cash flow statement is very important for every company. It is also one of very important for financial statement. It required for companies to provide information to investors, creditors, and other that is in compliance with generally accepted accounting principles.

Purpose of cash flow statement.

 The objective of Cash flow statement is to provide information about payments and collection in accounting period.

Methods of cash flow statement.

Two method of cash flow statement.

1. Direct method.

2. Indirect method.

Parts of cash flow statement.

1. Operating activities.

2. Investing activities

3. Financing activities.

Operating activities

Those activities which show the effect of cash on revenue and expense.

CASH RECEIPTS

Collections from customers for sales of goods and services 

Interest and dividends receives

CASH PAYMENTS

Payment to suppliers of merchandise and services, including payments to employees

Payment of interest

Payments of income taxes

Investing Activities:

Those activities in which cash is invest on some investing activities active.eg plant asset tangible asset and investment is called investing activities.

CASH RECEIPTS

Cash proceeds form selling investment and plant and intangible assets

Cash proceeds from collecting principal amounts on loans 

CASH PAYMENTS

Payments to acquire investments and plant and intangible assets

 Amounts advanced to borrowers

Financing Activities

Cash flows classified as financing activities include the following items which come from transactions. Debt and equity financing

CASH RECEIPTS

Proceeds from both short term and long term borrowing 

Cash received from owners

CASH PAYMENTS

Repayment of amounts borrowed 

 Payments to owners such as cash dividends

IAS 16- Property, Plant and Equipment

The cold of IAS 16 is to appoint the accounting analysis for property, plant,

And accessories (PP&E) so that users of the banking statements can discern

Information about the entity’s investment in its PP&E and any changes in those

Investments.

The arch issues associated with accounting for PP&E are

• Acceptance of the assets if they are acquired

• Assurance of the accustomed amounts of these assets in consecutive periods

• Assurance of abrasion accuse and any crime losses to be recognized

RECOGNITION

Ø  Items of Property, Plant and accessories should be accustomed as assets when:

Ø  It is apparent that the approaching bread-and-butter allowances associated to the asset will breeze to the entity.

Ø  Expected ton be acclimated during added than one accounting period.

Ø  This acceptance arch is activated to all PPE costs at the time if they are incurred. The costs include:

Ø  The bulk of acquirement additional any barter discount, import duties and non-refundable sales taxes.

Ø  The bulk anon incurred in bringing the asset to the area and action to operate.

Ø  The anon attributable costs like agent allowances payable to staff, site preparation, and professional fees anon associated with the installing, constructing or initially testing the asset...

Ø  Any added absolute bulk associated with the installation, construction or antecedent testing of the asset.

Ø  The anon for which the costs can be included in the bulk of PPE ends if the asset is accessible for use.

Ø  The bulk of asset will as well cover the bulk on

Ø  Dismantling and removing the account and abating the website on which it was located. The present bulk of such costs would be capitalized.

INITIAL MEASUREMENT

An account of property, bulb and accessories should initially be recorded at cost. Cost includes all absolute costs incurred on installation, construction or antecedent testing of the asset, plus all anon attributable costs explained above.

Cost model

Afterwards acceptance as an asset, an account of property, bulb and equipment

Shall be agitated at its bulk beneath any accumulated abrasion and any accumulated

Impairment losses.

Revaluation Mode:

After acceptance as an asset, an account of property, bulb and

Equipment whose fair bulk can be abstinent anxiously shall be agitated at a revalued

Amount, getting its fair bulk at the date of the revaluation beneath any subsequent

Accumulated abrasion and consecutive accumulated crime losses.

Revaluations shall be fabricated with acceptable regularity to ensure that the carrying

Amount does not alter materially from that which would be bent application fair

Value at the antithesis area date.

If an asset’s accustomed bulk is added as a aftereffect of a revaluation, the increase

Shall be accustomed anon to disinterestedness beneath the branch of revaluation surplus.

Depreciation

Depreciation is the analytical allocation of the depreciable bulk of an asset over its

Useful life. Depreciable bulk is the bulk of an asset, or added bulk commissioned for

Cost, beneath its antithesis value. Anniversary allotment of an account of property, bulb and equipment

With a bulk that is cogent in affiliation to the absolute bulk of the account shall be

Depreciated separately. The abrasion allegation for anniversary anon shall be recognized in

Profit or accident unless it is included in the accustomed bulk of addition asset.

The abrasion adjustment acclimated shall reflect the arrangement in which the asset’s future

Economic allowances are accepted to be captivated by the entity.

METHODS OF DEPRECIATION

The lot of accepted methods to admeasure abrasion is:

Straight Line Method

DEPRECIATION = COST - RESIDUAL VALUE / USEFUL LIFE

Diminishing Antithesis Method

Depreciation is affected on the crumbling antithesis in this method.

SCOPE:-

The Standard clarifies that some types of inventories are alfresco its ambit while assertive added types of inventories are exempted alone from the altitude requirements in the Standard.

Some of the ambit is as follows:-

1. Raw actual (material in use)

2. Plan in action (work getting in process)

3. Accomplished appurtenances (goods which are able for using)

The Standard does not administer to the altitude of inventories of producers of agronomical and backwoods products, agronomical aftermath afterwards harvest, and minerals and mineral products, to the admeasurements that they are abstinent at net accessible bulk in accordance with absolute industry practices. The antecedent adaptation of IAS 2 was adapted to alter the words 'mineral ores' with 'minerals and mineral products' to analyze that the ambit absolution is not bound to the aboriginal date of abstraction of mineral ores.

DISCLOSURE:-

Accounting action for inventories. Accustomed amount about classified as merchandise, supplies, materials, plan in action and accomplished goods· g amount, about classified as merchandise, supplies, materials, plan in action and accomplished goods. The allocation depends on what is adapted for entity…

Carrying bulk of any inventories at fair bulk beneath bulk to sell

Amount of any change about of a address down to NRV and the affairs that led to such reversal

Amount of any write-down of inventories accustomed as an bulk in the period

Accustomed bulk of inventories apprenticed as aegis for liabilities

Cost of inventories accustomed as bulk (cost of appurtenances sold). IAS 2 acknowledges that some enterprises allocate assets account costs by attributes (material, activity and so on) rather than by functions (CGS affairs bulk and so on). Accordingly, as an another to advice bulk of appurtenances awash expense, IAS 2 allows an article to acknowledge operating costs recognized during the anon by attributes of the bulk (raw abstracts and consumables, labor costs, added operating costs) and the bulk of the net change in inventories for the period).