MyCIMA

Inventory Definition per IAS 2 Clarification

Posted: Monday 07 December 2009 by Md Benozeer Ahmed
Replies : 4
Keywords: Inventory

Hi I face unique problem, Per IAS 2, Inventory is the stock of consumables directly attributable to COS. If i correctly understnad then how the deal with followings?

 

1. But what will happen if a company has large amount ( in value) of advertsing and promotion stuff ( more than 1 yr stock). But in order for meeting the current asset definition this stock must be consumed within 1 yr or normal operating cycle? I worked for pepsi in middle east; they used to show this in Curent Asset-inventory accompanied by a note segregating

 

2.  Suppose  you are running large amount of utensils of a chain 5 star hotel. These utensiuls are very costly and the stock ( 3 year stock) or the purchase value is significant in value. Should full purcahse value be charged to income statment under selling and distribution cost or should the full amount be charged to COS. Then  it is conflicting matching (accrual) concept. But if we show it under inventory then two-fold contradiction arises: these are consumables over 3 years and it is not a COS item. If we show it under Non current asset then it fail to comply the definition of asset: a resource controlled by an entity which is capable of generating future economic benefits. Then what to do?

These are the problems that I practically faced.  

Can somebody clarify me?

   

I think ....

Posted by Pinky Lynn on Tuesday 08 December 2009 06:43

Hi, you make me think. The company I work with owns a hotel. We have consumable stock but it never crosses my mind that inventory is like other current assets can only remain in Current Asset category if it is meant to hold for no more than 1 year. IAS (my country FRS102) states:

Inventories are assets:

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or

(c) in the form of material or supplies to be consumed in the production process or in the rendering of service.

At year end we measure the inventory accordingly, i.e. at the lower of cost and net reliasable value. Any impaired/obsolete stock is written off. So, stock items remain in the inventory so long that the intention of the entity is still as (a) or (b) above. I am not sure, as you have mentioned that it has to be only within the 1 year to qualify for inventory.

 As for (2) above, costly utensils are operating equipment, it is capitalised and depreciated. Depreciation is charged to P&L under COS indicating the systematic usage of the assets.

Thanks for sharing, I would also like to know the treatment for (1) above.

May I suggest that you ask CIMA Technical Service for help.

Regards,

Lynn 

 

 

 

Thanks

Posted by Md Benozeer Ahmed on Wednesday 09 December 2009 03:57

Hi Lynn, thanks yr comments gives me valuable insights. Should I write an email to CIMA Technical Service Team or asks help in the open discussion board. Benozeer  

Log in to MY CIMA

Posted by Pinky Lynn on Thursday 10 December 2009 06:18

Hi Ahmed,

You are most welcome. Just log in to MY CIMA. There you will  be able to see Technical Service. Follow the steps then post your queries/e-mail to them.

Regards,

Lynn 

 

 

Inventory Definition per IAS 2 Clarification Vs IAS11

Posted by Lokesh Rele on Friday 05 March 2010 00:33
Does Cost in excess of Billings under Construction Contracts fall under the definition Inventory under IAS 2 ?