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    PAS 2 Inventories

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    emilyjacalan

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    PAS 2 Inventories

    Uploaded by

    emilyjacalan
    1 views27 pages

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    Download as pptx, pdf, or txt
    1 views27 pages

    PAS 2 Inventories

    Uploaded by

    emilyjacalan

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 27

    PAS 2

    INVENTORIE
    CFAS
    Objective
    PAS 2 prescribe the accounting treatment for
    inventories. PAS 2 recognizes that a primary
    issue in accounting inventories is the
    determination of cost to be recognized as asset
    and carried forward until it is expensed. It also
    provides guidance on the cost formulas that are
    used to assign costs to inventories.
    Defi nition
    • assets held for sale in the ordinary

    Inventorie
    course of business (finished goods)

    • assets in the production process for

    s sale in the ordinary course of


    business (work in process)

    • materials and supplies that are


    consumed in production (raw
    materials)
    PAS 2 applies to all inventories
    except
    for the following:
    Assets not measured
    Assets accounted under the lower of cost
    for under other or net realizable value
    standards under PAS 2
    • inventories of producers of
    a. Financial Instruments
    agricultural, forest and
    (PAS 32 and PRFS 9)
    mineral products measured
    b. Biological Assets and
    at net realizable value in
    Agricultural produce at the
    accordance with well
    point of harvest
    established practices in
    (PAS 41)
    those industries
    c. work in process arising
    • inventories of commodity
    under construction contracts
    broker traders measured at
    fair value less cost to sell
    Purchase Cost

    a. Purchase Price
    Cost Other Cost

    additional costs that


    (net of trade
    might be incurred to
    discounts and other
    Conversion Cost bring the inventories
    rebates)
    to their present
    b. Import duties
    location and
    c. Non-refundable/ a. direct labor condition
    recoverable purchase b. factory overhead
    taxes
    d. transport
    e. handling
    f. Other cost directly
    attributable to the
    acquisition
    Excluded from cost of
    inventories
    ABNORMAL STORAGE COST
    WASTE

    EXCLUDED

    ADMINISTRATIVE
    SELLING COST
    OVERHEADS
    The COST FORMULAS deal with
    the computation of costs of
    inventories that are charged as

    Cost expense when the related


    revenue is recognized (i.e.,

    Formulas “cost of sales” or “cost goods


    sold”) as well as the cost of
    unsold inventories at the end
    of the period that are
    recognized as asset (i.e.,
    ending inventory).
    PAS 2, paragraph 25,
    EXPRESSLY provides that
    Cost the cost of inventories
    shall be determined by
    Formulas using either:
    • First In, First Out
    • Weighted Average
    Cost Formulas
    First In, First Out
    (FIFO) Weighted Average
    Under this formula, it is Under this formula, cost of
    assumed that inventories sales and ending inventory
    that were purchased or are determined based on
    produced first are sold first, the weighted average cost
    and therefore unsold of beginning inventory and
    inventories at the end of the all inventories purchased
    period are those most or produced during the
    recently purchased or period.
    produced.
    Illustration
    Illustration
    Illustration
    Specific
    • Specific identification means that specific costs

    Identification
    are attributed to identified items of inventory.
    • The cost of the inventory is determined by
    simply multiplying the units on hand by the
    actual unit cost.
    • PAS 2, paragraph 23, provides that this method
    is appropriate for inventories that are
    segregated for a specific project and
    inventories that are not ordinarily
    interchangeable.
    Measurement
    PAS 2, par. 9, provides that inventories shall
    be measured or presented in the statement
    of financial position at lower of cost and net
    realizable value (LCNRV)
    Net Realizable
    • is the estimated selling price in the ordinary

    Value
    course of business less the estimated costs of
    completion and the estimated costs necessary
    to make the sale.
    Accounting for
    LCNRV
    • If the cost < net realizable value, there is no
    accounting problem because the inventory is
    stated at cost and the increase in value is not
    recognized.

    • If the net realizable value is < cost, the


    inventory is measured at net realizable value.
    In this case, the problem is the proper
    treatment of the writedown of the inventory to
    net realizable value.
    Methods of Accounting for
    the Inventory Writedown
    DIRECT METHOD ALLOWANCE
    loss on inventory writedown
    METHOD
    loss on inventory writedown is
    is not accounted for accounted for separately
    separately
    inventory (LCNRV) xx inventory (cost) xx
    Income summary xx Income summary xx

    loss on inventory writedown


    xx
    All. for inventory writedown
    xx
    Illustratio
    n Inventory data on December 31, 2024
    INVENTOR
    COST 130,000
    Y
    ESTIMATED SELLING 140,000
    PRICE
    ESTIMATED COST TO 20,000
    SELL
    NRV= Est. Selling Price-Est. Cost to
    Sell
    NRV= 140,000-20,000
    NRV= 120,000
    DIRECT METHOD ALLOWANCE
    Inventory 120,000 Inventory
    METHOD
    130,000
    Income Summary Income Summary
    120,000 130,000
    # #

    Loss on Inv. WD 10,000


    FS Presentation:
    All. for Inv. WD
    Inventory 120,000 10,o00
    FS Presentation:

    Inventory 130,000
    Less: All. for Inv. WD
    Another
    Illustration
    TEST OF UNDERSTANDING

    Q1. The inventories shall be presented as one line


    item in the statement of financial position but the
    details of the inventories shall be disclosed in the
    notes to financial statements. They are classified
    and presented in the statement of financial
    position as

    a. Current liabilities
    b. Current assets
    c. Non-current assets
    TEST OF UNDERSTANDING

    Q2. The following are cost components of


    inventories, except

    a. Cost of purchase
    b. Cost of relocation of workers
    c. Cost of conversion
    d. Other cost incurred in bringing the inventories
    to their present location and condition
    TEST OF UNDERSTANDING

    Q3. PAS 2 provides that inventories shall be


    measured subsequently or presented in the
    statement of financial position at

    a. Higher of cost or net realizable value


    b. Lower of cost or market value
    c. Lower of cost or fair value
    d. Lower of cost or net realizable value
    TEST OF UNDERSTANDING

    Q4. What is net realizable value of inventory?

    a. Estimated selling price less cost to sell


    b. Estimated selling price less cost to complete
    c. Fair value less cost to complete and cost to sell
    d. Estimated selling price less cost to complete
    and
    less cost to sell
    TEST OF UNDERSTANDING

    Q5. PAS 2 expressly provides that the cost of


    inventories shall be determined using

    a. FIFO or LIFO
    b. FIFO or weighted average
    c. LIFO or weighted average
    d. FIFO, LIFO or weighted average

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