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Questions and Answers
Which of the following items is not considered inventory under IAS 2/MFRS 102?
Which of the following items is not considered inventory under IAS 2/MFRS 102?
- Work in progress
- Finished goods
- Equipment used in production (correct)
- Raw materials
What is the primary objective of IAS 2/MFRS 102?
What is the primary objective of IAS 2/MFRS 102?
- To prescribe accounting treatment for inventories (correct)
- To establish criteria for recognizing expenses
- To establish criteria for recognizing revenue
- To prescribe accounting treatment for property, plant, and equipment
According to IAS 2/MFRS 102, inventory should be measured at the lower of:
According to IAS 2/MFRS 102, inventory should be measured at the lower of:
- Market price or replacement cost
- Fair value or replacement cost
- Historical cost or replacement cost
- Cost or net realizable value (correct)
Which of the following costs should be included in the cost of inventory under IAS 2/MFRS 102?
Which of the following costs should be included in the cost of inventory under IAS 2/MFRS 102?
Net realizable value (NRV) is defined as:
Net realizable value (NRV) is defined as:
Which of the following is not an example of inventory under IAS 2/MFRS 102?
Which of the following is not an example of inventory under IAS 2/MFRS 102?
Under IAS 2/MFRS 102, when should an inventory write-down be reversed?
Under IAS 2/MFRS 102, when should an inventory write-down be reversed?
Which of the following cannot be included in the cost of inventory under IAS 2/MFRS 102?
Which of the following cannot be included in the cost of inventory under IAS 2/MFRS 102?
IAS 2/MFRS 102 excludes the valuation of inventories for which industry?
IAS 2/MFRS 102 excludes the valuation of inventories for which industry?
Under the FIFO (First-In, First-Out) method, which inventory items are assumed to be sold first?
Under the FIFO (First-In, First-Out) method, which inventory items are assumed to be sold first?
The weighted average cost method is based on:
The weighted average cost method is based on:
Which of the following inventory costs should not be capitalized under IAS 2/MFRS 102?
Which of the following inventory costs should not be capitalized under IAS 2/MFRS 102?
What is the correct treatment for inventory when cost exceeds net realizable value under IAS 2/MFRS 102?
What is the correct treatment for inventory when cost exceeds net realizable value under IAS 2/MFRS 102?
IAS 2/MFRS 102 applies to which of the following inventories?
IAS 2/MFRS 102 applies to which of the following inventories?
According to IAS 2/MFRS 102, inventory write-downs to net realizable value should be recognized:
According to IAS 2/MFRS 102, inventory write-downs to net realizable value should be recognized:
Under IAS 2/MFRS 102, which of the following best describes the treatment of borrowing costs related to inventories?
Under IAS 2/MFRS 102, which of the following best describes the treatment of borrowing costs related to inventories?
Flashcards
What is the main purpose of IAS 2/MFRS 102?
What is the main purpose of IAS 2/MFRS 102?
IAS 2/MFRS 102 focuses solely on the accounting treatment for inventories.
How is inventory measured?
How is inventory measured?
Inventory is measured at the lower of cost or net realizable value (NRV).
What is net realizable value (NRV)?
What is net realizable value (NRV)?
NRV is the estimated selling price less the costs to complete and sell the inventory.
What are some examples of inventory?
What are some examples of inventory?
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Can an inventory write-down be reversed?
Can an inventory write-down be reversed?
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Are selling and distribution costs included in inventory costs?
Are selling and distribution costs included in inventory costs?
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What does IAS 2/MFRS 102 not cover?
What does IAS 2/MFRS 102 not cover?
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What does the FIFO method assume?
What does the FIFO method assume?
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How does the weighted average cost method work?
How does the weighted average cost method work?
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Are administrative overheads included in inventory costs?
Are administrative overheads included in inventory costs?
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What costs are capitalized in inventory?
What costs are capitalized in inventory?
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What happens when inventory cost surpasses NRV?
What happens when inventory cost surpasses NRV?
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What are some exclusions from the scope of IAS 2/MFRS 102?
What are some exclusions from the scope of IAS 2/MFRS 102?
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Where are inventory write-downs recognized?
Where are inventory write-downs recognized?
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When can borrowing costs be capitalized in inventory?
When can borrowing costs be capitalized in inventory?
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Study Notes
Inventory Concepts Under IAS 2/MFRS 102
- Equipment used in production is not classified as inventory.
- The main purpose of IAS 2/MFRS 102 is to prescribe accounting treatment specifically for inventories.
Inventory Measurement
- Inventory must be measured at the lower of cost or net realizable value (NRV).
- The cost of inventory includes direct costs of conversion but excludes selling costs and administrative overheads unrelated to production.
Understanding Net Realizable Value (NRV)
- NRV is defined as the selling price less the cost required to complete and sell the inventory.
Types of Inventory
- Goods held for resale and materials in the production process are considered inventory.
- Property, plant, and equipment used in production do not qualify as inventory.
Inventory Write-Downs
- An inventory write-down can be reversed when the selling price increases.
- Selling and distribution costs cannot be capitalized in the inventory.
Exclusions in Inventory Valuation
- IAS 2/MFRS 102 does not cover the valuation of agricultural products after harvest.
Inventory Costing Methods
- The FIFO (First-In, First-Out) method assumes the oldest inventory items are sold first.
- The weighted average cost method calculates inventory cost using the total cost divided by the number of units available.
Capitalization of Costs
- Administrative overheads not related to production should not be capitalized to inventory.
- Direct materials, direct labor, and factory overheads directly attributable to production are capitalized.
Inventory Treatment Based on Valuation
- If inventory cost exceeds NRV, it should be carried at NRV.
Scope of IAS 2/MFRS 102
- IAS 2/MFRS 102 applies to finished goods in manufacturing but excludes biological assets and financial instruments.
Treatment of Inventory Write-Downs
- Inventory write-downs to NRV should be recognized as expenses in the income statement.
Borrowing Costs Related to Inventories
- Borrowing costs can only be capitalized if the inventory is part of a qualifying asset and not an immediate expense.
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