Inventory, EAEOAP & Provision

Question 1

IAS 2 - valuation, methods, changes in valuation

Answer 1

Stock is valued at lower of cost and net realisable value

Cost is the cost of bringing items of inventory to their present location and condition including costs of purchase and conversion, import duties, transport costs and cost specifically attributed to production.
NRV is estimated selling price net of costs to complete and to make the sale.

valuation methods of arriving at cost
1. actual unit cost for bespoke items
2.FIFO
3. WACC

Changes in valuation methods is a change in accounting policy and should be accounted for retrospectively

Question 2

IAS 10 - Post balance sheet events - Types, actions

Answer 2

PBE are events after the reporting period that occur between the end of accounting period and the dates the financial statements are signed off.

Types
1. Adjusting - These are clarifying and providing evidence of
conditions that existed at year end. Final accounts are changed
2. No adjusting - All other events., they do not concern year end
accounts, if significant add to notes on the account

If a series of non adjusting events cause the going concern to be invalid, then in effect they become adjusting events as the financial statements will not be drawn up on a going concern basis.

Question 3

IAS 37 - Provisions,
Provisions - conditions
contingent liabilities
contingent assets

Answer 3

Provisions is a liability of uncertain timing or amount, in order to recognise ALL three conditions must be present at reporting date

An entity must record a provision if and only if at the reporting date there is a
1. Present obligation (legal or constructive) has risen as a result of
past events.
2. payment is probable - 50%
3. the amount can be reliably estimated.

Constructive obligation arises if past practice creates an expectation on the part of a third party.

Discount if necessary to take reflect time value of money

Recognise liability in full or not at all, recognise for onerous contract, do not recognise for future events

contingent liabilities - This is a possible obligation or the amount cannot be reliably estimated.
There needs to be a DISCLOSURE in the accounts

contingent assets - This is a possible asset from past event whose existence will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly in the control of the entity.

It would only be recognised if it was virtually certain, if judged probable disclosure should be made in the notes.