Docstoc

249

Document Sample
249 Powered By Docstoc
					                                     IAS
                 Inventories
                                      2
Overview                       sikaca.com   |1




Scope: Overall [2]             sikaca.com
     IFRSs


     Scope: Measurement [3 to 5, 9]                                                  sikaca.com




2|




     Definitions [6 to 8]                                                            sikaca.com
                       are assets:
                       (a)     held for sale in the ordinary course of business (finished goods);
                       (b)     in the process of production for such sale (WIP); or
     Inventories
                       (c)     in the form of materials or supplies to be consumed in the
                               production process or in the rendering of services (raw materials
                               and other supplies).
                       is the estimated selling price in the ordinary course of business less
     NRV               the estimated costs of completion and
                       the estimated costs necessary to make the sale.
                       is the amount for which an asset could be exchanged, or a liability settled,
     FV
                       between knowledgeable, willing parties in an arm’s length transaction.

     NRV vs. FV
     NRV is entity-specific value; FV is not. NRV for inventories may not equal FV-CTS.
     INVENTORIES FOR A SERVICE PROVIDER
     In case of a service provider, inventories include the cost of the service for which the entity
     has not yet recognized the related revenue and are generally described as WIP.

     Example 1-NRV
     An entity has work in process inventory. Till now the cost of $70,000 has been spent on this
     inventory. The estimated cost to convert the WIP inventory into finished goods is $48,000.
                                                                             Financial Reporting


The estimated selling price of inventory if sold in its present condition is $70,500 and if sold
after it has been converted to finished goods is $120,000. The entity has to pay 2% commission
to its distributors.

The entity does not sell the incomplete inventory.

Required:
                                                                                                   |3
Calculate NRV and explain at which amount the inventories should appear in SFP.

Example 2-FV and NRV
You have a contract to supply 100 barrels of oil at $25 per barrel. The price is fixed for the 6
months. At the end of the 1st month the market price of oil is $30. (The fair value is $30.) You
buy the 100 barrels at the market price. Selling costs are $2 per barrel.
Required:
Record the journal entries.

Cost of Inventories: General [10-18]                                              sikaca.com

                   The costs of inventories shall comprise:
                   (a)   all costs of purchase,
                   (b)   costs of conversion,
    Costs of
                   (c)   other costs incurred in bringing the inventories into their present
  Inventories
                         location and condition. For example, it may be appropriate to
                         include non-POH or the costs of designing products for specific
                         customers in the cost of inventories.
                   Purchase price                                                       XX
                   Non-refundable/adjustable import duties and taxes                    XX
   Costs of        Transport and handling costs                                         XX
   Purchase        Other costs directly attributable to acquisition                     XX
                   Trade discounts and rebates                                          (X)
                                                                                        XX
                   These include:
                  (a)      costs directly related to the units of production, such as direct
   Costs of
                           labour
  Conversion
                  (b)      a systematic allocation of fixed and variable POH that are incurred
                           in converting materials into finished goods.
                   The conversion costs are included in inventory on the basis of following
                   level of productions:
   Level of
                    •      Direct labour etc è actual level of production
  Production
                    •      Variable POH è actual level of production
                    •      Fixed POH è normal or actual, whichever is higher
                   Fixed POH are those indirect costs of production that remain relatively
                   constant regardless of the volume of production, such as depreciation and
  Fixed POH
                   maintenance of factory buildings and equipment, and the cost of factory
                   management and administration.
                   Variable POH are those indirect costs of production that vary directly, or
 Variable POH      nearly directly, with the volume of production, such as indirect materials
                   and indirect labour.
                   Normal capacity is the production expected to be achieved on average
    Normal
                   over a number of periods or seasons under normal circumstances, taking
   capacity
                   into account the loss of capacity resulting from planned maintenance.
 Allocation of     A production process may result in more than one product being
 Conversion        produced simultaneously. This is the case, for example, when joint
   Costs to        products are produced or when there is a main product and a by-product.


                                                               by Kashif Adeel /www.sikaca.com
     IFRSs


      Joint and By-     When the costs of conversion of each product are not separately
        Products        identifiable, they are allocated between the products on a rational and
                        consistent basis. The allocation may be based, for example, on the
                        relative sales value of each product either at the stage in the production
                        process when the products become separately identifiable, or at the
                        completion of production.
4|                      Most by-products, by their nature, are immaterial. When this is the case,
                        they are often measured at NRV and this value is deducted from the cost
                        of the main product. As a result, the carrying amount of the main product
                        is not materially different from its cost.
                        Examples of costs excluded from the cost of inventories and recognised
                        as expenses in the period in which they are incurred are:
       Costs to be      (a)     abnormal amounts and wastages;
        excluded        (b)     storage costs, unless necessary for the production process;
                        (c)     administrative overheads; and
                        (d)     selling costs.
       Borrowing        If an inventory is a qualifying asset under IAS 23, the borrowing costs are
         costs          included in the costs of inventories.
        Deferred
       Settlement       amount paid – purchase price for normal credit terms = interest expense
         Terms

     Example 3 Cost of Inventories
     SiKA Limited imported raw material (9,000 Units) for use in production of goods with following
     details.
                                                                                            $
        Invoice value                                                                     990,000
        Trade discount                                                                      91,000
        Non-refundable import duties                                                        50,000
        Refundable sales tax                                                               127,000
        Adjustable Income tax                                                               30,000
        Carriage and Freight In                                                             15,000
        Loading and Unloading charges                                                        7,000
        A manager spend his time on this import specifically worth $10,000                  10,000

     The following costs were incurred later:
                                                                                           $
        Direct labour                                                                     450,000
        Variable production overheads                                                     630,000
        Fixed production overheads                                                        800,000
        Storage costs                                                                      27,000
        Administrative overheads                                                           80,000
        Selling costs                                                                      35,000
     The following information is relevant:
     •       There was no opening inventory. The company only processed the items imported (as
             above) during the year.
     •       There is no raw material or WIP inventory at the year end. However, finished goods
             inventory includes 800 units (remaining units were sold during the year).
     •       The variable production overhead includes $90,000 which was incurred due to incorrect
             production scheduling due to mistake of production manager.
     •       The storage is not necessary part of production process.
     •       The normal capacity of plant is 12,500 units.



     SiKA Sharing
                                                                               Financial Reporting


Required:
Calculate the costs of purchase.
Calculate the cost of inventory per unit and total cost of finished goods inventory.

Example 4 Joint and By Products
The following data relates to manufacturing process III of CD Limited.
                                                                                                     |5
  Product                                                        Units         Unit sale price $
  X (Main product)                                                   1,000                  $250
  Y (Main product)                                                   1,500                  $230
  B (By-product)                                                     2,500                    $5
The total common costs for the manufacturing process III are $1,875,500.
Required:
Calculate the cost of inventories for each product.

Example 5 Deferred Settlement Terms
ABC Limited purchased material worth cash price of $5,000 but they had to pay $5,600 in total
as they were allowed by the supplier to take two months extra credit period on ABC Limited
specific request.

Required:
Record the journal entries.

Cost of Inventories: Service Provider [19]                                         sikaca.com

                   These costs consist primarily of the labour and other costs of personnel
    Include        directly engaged in providing the service, including supervisory personnel,
                   and attributable overheads.
                   Labour and other costs relating to sales and general administrative
    Exclude        personnel are not included but are recognised as expenses in the period
                   in which they are incurred.
                   The cost of inventories of a service provider does not include profit
Profit Margins     margins or non-attributable overheads that are often factored into prices
                   charged by service providers.

Example 6 Cost of Inventories of a Service Provider
GB Chartered Accountants started a consultancy assignment on June 21, 2010 for Ali
Enterprises whose CEO was a friend of one of partners of GB Chartered Accountants. The
following personnel were involved on the assignments with monthly salaries/stipends mentioned
after their name.
 Name                              Designation           Days Spent on Job           $
 Mr. Javed                         Supervisor                     3                  45,000
 Mr. Abid                          Senior                         6                  25,000
 Mr. Zain                          Semi Senior                    7                   11,000
 Mr. Abubakar                      Junior                         7                    6,500
 Mr. Shan                          Junior                         7                    6,500

The total travelling allowance claimed for the assignment till June 30, 2010 (which is year-end
of GB Chartered Accountants) is $1,000.
The assignment is expected to take a long period of time. However, as the assignment has just
been started, the amount of revenue from the assignment cannot be measured reliably.
Required:
Calculate the cost of inventory for GB Chartered Accountants.


                                                                 by Kashif Adeel /www.sikaca.com
     IFRSs




     Cost of Inventories: Agriculture Produce [20]                                   sikaca.com
     The agricultural produce is measured at FV less POS costs at the time of harvest under IAS
     41. Subsequently IAS 2 applies on such inventories and FV less POS costs are deemed as
6|
     cost of such inventories.

     Techniques for the Measurement of Cost [21-22]                                  sikaca.com

      When to use        Techniques for the measurement of the cost of inventories, such as the
         these           standard cost method or the retail method, may be used for convenience
      techniques?        if the results approximate cost.
                         Standard costs take into account normal levels of materials and supplies,
       Standard
                         labour, efficiency and capacity utilization. They are regularly reviewed
     Costs Method
                         and, if necessary, revised in the light of current conditions.
                         It is often used in the retail industry having of large numbers of rapidly
                         changing items with similar margins for which it is impracticable to use
                         other methods. The cost is determined by reducing the sales value of the
     Retail Method
                         inventory by the appropriate percentage gross margin. The percentage
                         used takes into consideration inventory marked down to below its original
                         selling price. An average percentage for each department is often used.
     COST FORMULAS [23-27]                                                           sikaca.com




                         An entity shall use the same cost formula for all inventories having a
      Consistency
                         similar nature and use to the entity.
        Different        For inventories with a different nature or use, different cost formulas may
        formulas         be justified.
                         The FIFO formula assumes that the items of inventory that were
                         purchased or produced first are sold first, and consequently the items
             FIFO
                         remaining in inventory at the end of the period are those most recently
                         purchased or produced.
                         Under the weighted average cost formula, the cost of each item is
                         determined from the weighted average of the cost of similar items at the
        Weighted         beginning of a period and the cost of similar items purchased or produced
        Average          during the period. The average may be calculated on a periodic basis, or
                         as each additional shipment is received, depending upon the
                         circumstances of the entity.

     Example 7      FIFO and Weighted Average Method
                                                                             Financial Reporting


The following information is available from records of K Limited, in respect of Chemical X, for
the year ended December 31, 2007.
Opening inventory as at January 01, 2007:     20,000 litres valuing Rs. 220,000
Purchases:
        15.01.07      11,000 litres @ Rs. 12 per litre
        21.04.07      8,000 litres @ Rs. 13 per litre                                              |7
        07.07.07      7,000 litres @ Rs. 14 per litre
        08.11.07      14,000 litres @ Rs. 12 per litre
Sold:
        11.01.07      9000 litres @ Rs. 15 per litre
        22.04.07      18,000 litres @ Rs. 15 per litre
        11.05.07      9,000 litres @ Rs. 16 per litre
        20.12.07      12,000 litres @ Rs. 15 per litre
Required:
What is value of stock as at December 31, 2007 under FIFO and Weighted Average method?

NRV [28-33]                                                                       sikaca.com

                   The practice of writing inventories down below cost to NRV is consistent
   Rationale       with the view that assets should not be carried in excess of amounts
                   expected to be realised from their sale or use.
                   Inventories are usually written down to NRV item by item. In some
                   circumstances, however, it may be appropriate to group similar or related
                   items. It is not appropriate to write inventories down on the basis of a
                   classification of inventory, for example, finished goods, or all the
 Item by Item      inventories in a particular operating segment.
                   Service providers generally accumulate costs in respect of each service
                   for which a separate selling price is charged. Therefore, each such
                   service is treated as a separate item.
                   Estimates of NRV are based on the most reliable evidence available at
                   the time the estimates are made, of the amount the inventories are
                   expected to realise. These estimates take into consideration fluctuations
                   of price or cost directly relating to events occurring after the end of the
                   period to the extent that such events confirm conditions existing at the
   Estimate        end of the period.
                   Estimates of NRV also take into consideration the purpose for which the
                   inventory is held. For example, the NRV of the quantity of inventory held
                   to satisfy firm sales or service contracts is based on the contract price. If
                   the sales contracts are for less than the inventory quantities held, the
                   NRV of the excess is based on general selling prices.
                   Provisions may arise from firm sales contracts in excess of inventory
  Provisions       quantities held or from firm purchase contracts. Such provisions are dealt
                   with under IAS 37.
                   Materials and other supplies held for use in the production of inventories
                   are not written down below cost if the finished products in which they will
                   be incorporated are expected to be sold at or above cost. However, when
 NRV of Raw
                   a decline in the price of materials indicates that the cost of the finished
  Material
                   products exceeds NRV, the materials are written down to NRV. In such
                   circumstances, the replacement cost of the materials may be the best
                   available measure of their NRV.
  Reversal of      A new assessment is made of NRV in each subsequent period. When the


                                                               by Kashif Adeel /www.sikaca.com
     IFRSs


         write down        circumstances that previously caused inventories to be written down
                           below cost no longer exist or when there is clear evidence of an increase
                           in NRV because of changed economic circumstances, the amount of the
                           write-down is reversed (i.e. the reversal is limited to the amount of the
                           original write-down) so that the new carrying amount is the lower of the
                           cost and the revised NRV. This occurs, for example, when an item of
8|                         inventory that is carried at NRV, because its selling price has declined, is
                           still on hand in a subsequent period and its selling price has increased.

     Example 8 NRV Level
     The following data relates to inventory of King Limited:
       Particulars                                     Cost            NRV
                                                        $               $
       Material A                                      87,000          98,000
       Material B                                      94,000          82,000
       Total Raw Material Inventory                   181,000         180,000

         WIP AX                                       105,000          116,000
         WIP BY                                        97,000           87,000
         Total WIP Inventory                          202,000         203,000

         Product X                                    120,000         135,000
         Product Y                                    105,000         102,000
         Total Finished goods Inventory               235,000         237,000

         Total Inventory                              618,000         620,000
     Required:
     Calculate the amount of write down to NRV, if required.

     Example 9 Provision
     SK Limited is engaged in trading of chemical products and has entered into following two
     contracts.
     •      On December 15, 2010 with ABC Limited to supply 1,000 units of Product A at $10 to be
            delivered on Jan 15, 2011. On December 31, 2010 SK Limited has 800 units (at $9 per
            unit) of Product A in inventory and the purchase price of Product A has increased to $12
            per unit.
     •        On December 20, 2010 with XYZ Limited (a firm contract) to buy 500 units of Product
              X at $10 to be delivered on Jan 20, 2011. On December 31, 2010 the purchase price of
              Product X has fallen to $7 per unit.
     Required:
     Record journal entries due to change in purchase prices

     Example 10 NRV of Raw Material
     CE Limited is engaged in the manufacturing of plastic toys. The price of plastic acquired by CE
     Limited has fallen from $200 per unit to $170 per unit. At the year end, CE Limited has 2,000
     units which it purchased at $200 per unit. The toys made from this plastic are sold at $425 per
     toy. The total cost of production of one toy (including plastic costs) is $350. One unit of plastic
     is converted into one toy.
     Required:
     At which value, the plastic material should be shown in SFP.
     The amount of write down required, if any.


     SiKA Sharing
                                                                            Financial Reporting



Example 11 NRV of Raw Material
PM Limited is engaged in the manufacturing of plastic toys. The price of plastic acquired by PM
Limited has fallen from $200 per unit to $170 per unit.

At the year end, PM Limited has 2,000 units which it purchased at $200 per unit. The toys made
from this plastic are sold at $340 per toy. The total cost of production of one toy (including    |9
plastic costs @200 per unit) is $350. One unit of plastic is converted into one toy.

Required:
At which value, the plastic material should be shown in SFP.
The amount of write down required, if any.

Example 12 Reversal of write down
An item of inventory had a cost of $10,000 and NRV of $9,500 at December 31, 2010 and so
the inventory was written down by $500. It is now December 31, 2010 and that item of
inventory is still with the entity but its NRV has increased to $9,800.

Required:
Calculate the amount of Reversal of write down to NRV.

Example 13 Reversal of write down
An item of inventory had a cost of $10,000 and NRV of $9,500 at December 31, 2010 and so
the inventory was written down by $500. It is now December 31, 2010 and that item of
inventory is still with the entity but its NRV has increased to $10,800.

Required:
Calculate the amount of Reversal of write down to NRV.

Recognition as an Expense [34-35]                                               sikaca.com

When Inventories      The carrying amount of those inventories shall be recognized as an
     are sold         expense in the period in which the related revenue is recognized.
 Write down and
                      Recognised as an expense in the period the write-down or loss occurs.
      losses
Reversal of write     Recognised as a reduction in the amount of inventories recognized as
       down           an expense in the period in which the reversal occurs.
                      Some inventories may be allocated to other asset accounts, for
  Allocation to       example, inventory used as a component of self-constructed property,
  other assets        plant or equipment. Inventories allocated to another asset in this way
                      are recognised as an expense during the useful life of that asset.

Disclosure [36-39]                                                              sikaca.com
The financial statements shall disclose:
(a)    the accounting policies adopted in measuring inventories, including the cost formula
       used;
(b)    the total carrying amount of inventories and the carrying amount in classifications
       appropriate to the entity;
(c)    the carrying amount of inventories carried at FV-CTS;
(d)    the amount of inventories recognised as an expense during the period;
(e)    the amount of any write-down of inventories recognised as an expense in the period;
(f)    the amount of any reversal of any write-down that is recognised as a reduction in the
       amount of inventories recognised as expense in the period;
(g)    the circumstances or events that led to the reversal of a write-down of inventories; and
(h)    the carrying amount of inventories pledged as security for liabilities.


                                                               by Kashif Adeel /www.sikaca.com
      IFRSs



      Illustration 1
                                    Notes to the Financial Statements
      Significant Accounting Policies
      Inventories are measured at lower of cost and net realizable value. Cost is measured by using
      weighted average formula.
10|
      Inventories                                                                        $
             Raw Material                                                              5,000
             Work in process                                                           6,000
             Finished goods                                                            7,000
             Total                                                                     18,000
      Carrying amount of inventories carried at fair value less cost to sell is Nil.

      Inventories sold and recognized as an expense                                    288,000
      Amount of write down to NRV recognizes as an expense                                400
      Amount of reversal of write down recognized as reduction in expense                 600

      The reason for reversal is market rate fluctuation of certain products especially due to
      shortage of supply, the price has increased.

      Inventories have been pledged as security against running finance obtained from Bank A and
      Bank B.

                                              Abbreviations Key:
      LCN            Lower of Cost and NRV              NRV    Net Realisable Value
      PL             Profit or loss                     FV     Fair value
      FV-CTS         Fair value less cost to sell       POH    Production Overheads




      SiKA Sharing
                                                                             Financial Reporting


Answers to Examples                                                             sikaca.com
Answer 1    Lower of Cost and NRV
                                                                                           $
 Estimated selling price in ordinary course of business                                 120,000
 Less: Estimated cost of completion                                                    (48,000)
 Less: Estimated cost necessary to make the sale $120,000 x 2%                           (2,400)   | 11
 NRV                                                                                     69,600

 Cost                                                                                   70,000

 The amount at which inventories should appear in SFP (lower)                           69,600

Answer 2 - FV and NRV
                                                                               Dr.          Cr.
 Inventories (purchases)                                        SFP          3,000
        Bank                                                    SFP                       3,000
 Purchase of 100 barrel at $30 per barrel
 Inventory loss                                           SFP           700
        Inventories                                       PL                               700
 Write down of inventory to its NRV i.e. $25 - $2 = $23 x 100 barrels = $2,300
Answer 3    Cost of Inventories
 Costs of purchase                                                                       $
 Invoice value                                                                        990,000
 Less: Trade discount                                                                 (91,000)
                                                                                      899,000
 Non-refundable import duties                                                          50,000
 Carriage and Freight In                                                                15,000
 Loading and Unloading charges                                                           7,000
 Directly chargeable - Manager Salary                                                   10,000
                                                                                      981,000

 Cost of Inventory per Unit                                      Total$     Units    Per Unit$
 Cost of Purchase                                                 981,000    9,000         109
 Direct Labour                                                    450,000    9,000          50
 Variable production overhead $630,000-90,000                     540,000    9,000          60
 Fixed production overhead                                        800,000   12,500          64
                                                                                           283

Total value of Inventory
$283 x 800 units =                                                                   $226,400




                                                                by Kashif Adeel /www.sikaca.com
      IFRSs


      Answer 4       Joint and By Products
                                                                                     $
        Product X               W3                                                782,773
        Product Y               W3                                              1,080,227
        Product B               W1                                                  12,500
12|                                                                              1,875,500

        W1
        Total common costs                                                      1,875,500
        NRV of Byproduct B                                 $5 x 2,500             (12,500)
        Cost to be apportioned between Joint products                           1,863,000

        W2 Estimated Sales of Product
        Product X           1,000 x $250                                          250,000
        Product Y           1,500 x $230                                          345,000
                                                                                  595,000
        W3 Cost Apportionment Joint products
        Product X          250,000/595,000 x 1,863,000                            782,773
        Product Y          345,000/595,000 x 1,863,000                          1,080,227
        Total                                                                   1,863,000

      Answer 5       Deferred Settlement Terms
                                                                          Dr.         Cr.
        Inventories (purchases)                            SFP          5,000
               Supplier                                    SFP                      5,000
        Purchase of Inventories

        Supplier                                           SFP          5,000
        Interest exp                                       PL             600
               Bank                                        SFP                      5,600
        Payment for Inventories
      Answer 6 Cost of Inventories of a Service Provider
       Name                                                                       $
       Mr. Javed            $45,000 x 3/30 days                                   4,500
       Mr. Abid             $25,000 x 6/30 days                                   5,000
       Mr. Zain             $11,000 x 7/30 days                                   2,567
       Mr. Abubakar         $6,500 x 7/30 days                                     1,517
       Mr. Shan             $6,500 x 7/30 days                                     1,517
       Travelling allowance                                                       1,000
       Total                                                                     16,101




      SiKA Sharing
                                                                              Financial Reporting


Answer 7      FIFO and Weighted Average Method
                     Chemical X: Stock Ledger Card under FIFO method
                    Purchase                        Sales                         Balance
  Date
            Quantity Rate Value            Quantity Rate     Value     Quantity    Rate     Value
01.01.07                                                                20,000        11    220,000
11.01.07                                     9,000     11    99,000      11,000       11     121,000   | 13
15.01.07       11,000      12    132,000                                 11,000       11     121,000
                                                                         11,000       12     132,000
21.04.07        8,000      13    104,000                                 11,000       11     121,000
                                                                         11,000       12     132,000
                                                                          8,000       13     104,000
22.04.07                                     11,000    11    121,000      4,000       12      48,000
                                              7,000    12     84,000      8,000       13     104,000
11.05.07                                      4,000    12     48,000      3,000       13      39,000
                                              5,000    13     65,000
07.07.07        7,000      14    98,000                                   3,000      13      39,000
                                                                          7,000      14      98,000
08.11.07       14,000      12    168,000                                  3,000      13      39,000
                                                                          7,000      14      98,000
                                                                         14,000      12     168,000
20.12.07                                     3,000     13    39,000
                                             7,000     14    98,000
                                             2,000     12    24,000     12,000       12     144,000

Chemical X: Valuation under Weighted Average Method
Weighted avg. rate =
(Value of opening inventory + Value of purchases) / (opening stock units + Units purchased)
         = (Rs. 220,000 + Rs. 502,000) / (20,000 + 40,000)
         = Rs. 12.03 per litre

Value of closing stock = 12,000 litres x Rs. 12.03 = Rs. 144,360
Workings:
Number of units purchased=11,000+8,000+7,000+14,000                          =40,000 Litres
Value of purchases = (11,000 x 12)+(8,000 x 13)+(7,000x14)+(14,000x12)       = Rs. 502,000
Number of units sold =9,000+18,000+9,000+12,000                              =48,000 Litres
Value of sales = (9,000x15)+(18,000x15)+(9,000x16)+(12,000x15)               = Rs. 729,000
Units in closing inventory = 20,000+40,000-48,000                            =12,000 Litres




                                                                 by Kashif Adeel /www.sikaca.com
      IFRSs


      Answer 8 NRV Level
       Particulars                                     Cost           NRV          Write down
                                                        $              $               $
        Material A                                     87,000         98,000                 0
        Material B                                     94,000         82,000            12,000
        Total Raw Material Inventory                  181,000        180,000
14|

        WIP AX                                       105,000         116,000                   0
        WIP BY                                        97,000          87,000              10,000
        Total WIP Inventory                          202,000        203,000

        Product X                                    120,000        135,000                     0
        Product Y                                    105,000        102,000                 3,000
        Total Finished goods Inventory               235,000        237,000

        Total                                        618,000        620,000               25,000

      Answer 9       Provision
                                                                                      Dr.             Cr.
        Loss                                                          PL              400
               Provision for expected loss (onerous contract)         SFP                            400
        Supply contract, increased price on short quantities
        $12-10 = $2 x (1,000-800 units) = $400

        Loss                                                          SFP           1,500
               Provision for expected loss (onerous contract)         SFP                           1,500
        Firm purchase contract
        $10-7=$3 x 500 units = $1,500

      Answer 10 NRV of Raw Material
      As the finished goods are sold above cost, there is no need to write down raw materials.
      Value of Plastic Materials in SFP $200 x 2,000 units =                       $400,000

      Answer 11 NRV of Raw Material
      As the finished goods are not sold at or above cost, the materials need to be written down to its
      NRV / replacement cost.
      Value of Plastic Materials in SFP $170 x 2,000 units =                       $340,000
      Amount of write down required $400,000 - $340,000                            $60,000

      Answer 12 Reversal of write down
      Reversal $9,800 - $9,500                                                     $300

      Answer 13 Reversal of write down
      Reversal $10,000 - $9,500                                                    $500




      SiKA Sharing
                                                                 Financial Reporting




   DOCUMENT PROPERTIES
DISCLAIMER
The text in this material and any others made available by any SiKA Group              | 15
company does not amount to advice on a particular matter and should not be
taken as such. No reliance should be placed on the content as the basis for any
investment or other decision or in connection with any advice given to third
parties. Please consult your appropriate professional adviser as necessary.
SiKA expressly disclaim all liability to any person in respect of any losses or
other claims, whether direct, indirect, incidental, consequential, or otherwise
arising in relation to the use of such materials.

RIGHTS RESERVED
All rights reserved. For details, please visit Terms and Conditions section on
www.sikaca.com

AUTHOR
Kashif Adeel ACA

PREPARATION DATE
June 03, 2010

LATEST UPDATION
June 03, 2010

PRIMARY SOURCE
IFRSs bounded volume 2009 issued by IASB.

AVAILABILITY
This material can be downloaded free of cost from www.sikaca.com

                                     I




                                                    by Kashif Adeel /www.sikaca.com

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:3
posted:3/24/2012
language:English
pages:15
Description: A news article discusses current or recent news of either general interest (i.e. daily newspapers) or of a specific topic (i.e. political or trade news magazines, club newsletters, or technology news websites). A news article can include accounts of eye witnesses to the happening event. It can contain photographs, accounts, statistics, graphs, recollections, interviews, polls, debates on the topic, etc. Headlines can be used to focus the reader’s attention on a particular (or main) part of the article. The writer can also give facts and detailed information following answers to general questions like who, what, when, where, why and how. Quoted references can also be helpful. References to people can also be made through written accounts of interviews and debates confirming the factuality of the writer’s information and the reliability of his source. The writer can use redirection to ensure that the reader keeps reading the article and to draw her attention to other articles. For example, phrases like "Continued on page 3” redirect the reader to a page where the article is continued. While a good conclusion is an important ingredient for newspaper articles, the immediacy of a deadline environment means that copy editing often takes the form of deleting everything past an arbitrary point in the story corresponding to the dictates of available space on a page. Therefore, newspaper reporters are trained to write in inverted pyramid style, with all the most important information in the first paragraph or two. If less vital details are pushed towards the end of the story, the potentially destructive impact of draconian copy editing will be minimized.