Inventory costing 2 better understand

Inventory costing

Inventory costing – is about costs allocated to value inventory in stock at the end of a reporting period and calculate the costs of sales/gross profit earned in a period. Most operations comprise retail or wholesale operations, using relatively simple inventory costing systems such as FIFO, LIFO or Average Costs, other operations such as manufacturing or servicing/construction use standard or actual costing systems.

Also keep in mind that the general rule in IFRS is that inventory is measured as the lesser of cost or net realizable value.

For context Net realizable value

There are a number of different inventory costing methods available for Inventory / Cost of Goods Sold (COGS) valuations/allocations. Perpetual systems continuously update the inventory, avoiding issues inherent with periodic based systems. For cost flow, there are three (3) regularly used cost methodologies in the world: FIFO, LIFO, and Weighted-Average Cost (also commonly referred to as Average Cost).

  1. FIFO or First-In, First-Out, always assigns the cost of the earliest unit available at the time of sale to COGS, regardless of which unit from the inventory pool is used.
  2. LIFO or Last-In, First-Out, always assigns the cost of the newest unit available at the time of sale to COGS, regardless of which unit from the inventory pool is used.
  3. Average Cost calculates the cost that is assigned to COGS and inventory each period closing with new units purchased and added to the inventory.

However, there are also more complex inventory costing systems that facilitate the (financial and operational) management of manufacturing and servicing activities, reference is made to standard costs and actual costs.

To visualize the difference of these three systems (FIFO, LIFO and Average Costs) here is a simple case in quantities of one product in inventory only:

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Best intro to accounting for cryptocurrencies in 1 view

Best intro to accounting for cryptocurrencies

the basics provides guidance on some of the basic issues encountered in accounting for cryptocurrencies, focussing on the accounting for the holder.

The popularity of cryptocurrencies has soared in recent years, yet they do not fit easily within IFRS’ financial reporting structure.

For example, an approach of accounting for holdings of cryptocurrencies at fair value through profit or loss may seem intuitive but is incompatible with the requirements of IFRS in most circumstances. Here the acceptable methods of accounting for holdings in cryptocurrencies are discussed while touching upon other issues that may be encountered.

Relevant IFRS

IAS 38 Intangible AssetsIAS 2 InventoriesIFRS 13 Fair Value Measurement

What is a cryptocurrency?

Cryptocurrency is digital or ‘virtual’ money, which uses cryptography to secure its transactions, to control the creation of additional currency units, and to verify the transfer of assets. Cryptography itself describes the process by which codes are written or generated to allow information to be kept secret.

In contrast to traditional forms of money which are controlled using centralised banking systems, cryptocurrencies use decentralised control. The decentralised control of a cryptocurrency works through a ‘blockchain’, which is a public transaction database, functioning as a distributed ledger.

This has advantages in that two parties can transact with each other directly without the need for an intermediary, saving time and cost.

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All about Inventory discounts and rebates the best 2 go

Inventory discounts and rebates

All about inventory discounts and rebates (based on IAS 2 Inventory) – Discounts and rebates can be offered to purchasers in a number of ways, for example trade discounts, settlement discounts, volume-based rebates and other rebates.

Accounting for these reductions will vary depending on the type of arrangement. The purchaser’s accounting treatment for the different types of rebates and discounts along with some application examples are provided here.

Overview

Type of discount

Description

IFRS Accounting

Trade discount

inventory discounts and rebates

A reduction in the price charged when a vendor makes a sale to a reseller rather than directly to the end customer

Deduct from the cost of inventories.

Settlement discounts

A discount for payment

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IAS 2 Example Contractual volume rebates

IAS 2 Example Contractual volume rebates provides an example calculation with regard to the costs of inventory in combination with contractual volume rebates.

Volume-based discounts should be recognised when it is probable they will be received. When the ‘cost’ for IAS 2 purposes is subject to uncertainties, the most likely cost is used. Therefore rebates that are probable should be deducted from the cost of the inventory and recognised as a prepayment or similar asset.

The probability of obtaining the rebate should be reviewed at future period ends if the arrangement remains open. If receipt is no longer probable, then the prepayment asset should be reversed with a corresponding adjustment to inventories and/or cost of sales as appropriate. IAS 2 Read more

1 best way Q Inventory or Equipment?

Inventory or Equipment – This distinction is important because inventory is current and equipment is non-current property plant and equipment. Inventory is cash flow from operating activities, equipment is cash flow used in investing activities. Inventory is cost of sales and equipment is depreciation. Inventory or Equipment

Equipment is recognised component-wise. This means each significant part is treated just like a non-current asset. When that part is replaced, it is derecognised (or scrapped) and the new part is purchased and capitalised. Inventory or Equipment

Therefore, the stocks of such significant parts are not classified as inventories. They are just like capital ‘work in progress’. The stock of significant parts awaiting utilisation may be classified as for example equipment … Read more

Inventories the highlights

Inventories the highlights as it says provides a high level summary of the accounting and financial reporting in respect of inventory.

See Inventories for IFRS for Small and Medium-sized entities, the complete IAS 2 Inventories standards is also available.

Inventory is also called stock in trade, or just stock. Inventories the highlights

ScopeInventory warehouse valuation LIFO

Applies to all inventories except:

  • work in progress on construction and service contracts (IAS 11);
  • financial instruments (IAS 32 and IFRS 9); and
  • biological assets arising from agricultural activity (IAS 41).

Does not apply to the measurement of inventories held by:

  • producers of agricultural and forest products, and minerals and mineral products, that are measured at net realisable value in accordance with well-established practices in those industries;
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