Chapter 14 Inventories And Bological Assets

Question 1

Inventories (IAS 2)

Answer 1

Inventories shall be measured at the lower of

1. Cost
2. NRV

Question 2

Allowable costs per IAS 2

Answer 2

1. Costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
2. Costs of purchase - purchase price, import duties and other taxes and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services less trade discounts, rebates and other similar items.
3. Costs of conversion - direct labour costs, direct expenses and sub contracted work.
   Systematic allocation of fixed and variable production overheads incurred in converting materials into finished goods.

Question 3

NRV

Answer 3

The estimated selling price less:

Estimated costs of completion and estimated costs necessary to make the sale (marketing, selling and distribution costs).

Question 4

NRV < Cost

Answer 4

1. An increase in costs or a fall in selling price.
2. Physical deterioration of inventories.
3. Obsolescence of products.
4. Part of a company’s marketing strategy to manufacture and sell products at a loss.
5. Errors in product or purchasing.

Question 5

Biological assets (IAS 41)

Answer 5

A biological asset is a living animal or plant.

Question 6

Agricultural produce (IAS 41)

Answer 6

Agricultural produce is the harvested product of the entity’s biological assets.

After harvest, IAS 2 Inventories applies to agricultural produce.

Biological transformation includes:
Growth
Production of agricultural produce
Degeneration
Procreation

Question 7

Recognition

Answer 7

1. The entity controls the asset as a result of past events.
2. Probable future economic benefits associated with the asset will flow to the entity.
3. The fair value or cost of the asset can be measured reliably.

Question 8

Measurement

Answer 8

Biological assets are measured both on initial recognition and at the end of each reporting period at fair value less costs to sell.

Changes in fair value less costs to sell are recognised in profit or loss.

Where fair value cannot be measured reliably, biological assets are measured at cost less accumulated depreciation and impairment losses.

Biological assets are non-current assets.