Presentation is loading. Please wait.

Presentation is loading. Please wait.

PwC Inventories 2 PwC Overview of session 1. Scope of application and key concepts 3. Disclosures 5. Questions 4. E.C. specific.

Similar presentations


Presentation on theme: "PwC Inventories 2 PwC Overview of session 1. Scope of application and key concepts 3. Disclosures 5. Questions 4. E.C. specific."— Presentation transcript:

1 PwC Inventories

2 2 PwC Overview of session 1. Scope of application and key concepts 3. Disclosures 5. Questions 4. E.C. specific implications 2. Recognition and measurement

3 PwC Inventories 1. Scope of application and key concepts

4 4 PwC Definition Inventories are assets: held for sale in the ordinary course of business; or in the process of production for such sale; or in the form of materials or supplies to be consumed in the production process or in the rendering of services

5 5 PwC Inventories Inventories include: goods: commodities purchased and held for resale supplies: raw materials products: intermediate products, finished goods Raw MaterialsWork in ProgressFinished Goods

6 6 PwC Out of scope Not held for sale of for use in the production cycle: Office supplies –expensed Fixed assets –durable use for own activities E.g. Most spare parts and servicing equipment are usually carried as inventory and recognised as an expense as consumed. However, major spare parts and stand-by equipment qualify as property, plant and equipment when the enterprise expects to use them during more than one period or if they can be used only in connection with an item of property, plant and equipment and their use is expected to be irregular.

7 7 PwC IPSAS 12 Covers all inventories other than: WIP under construction contracts Financial instruments Agricultural and forest products, mineral ores and biological assets

8 PwC Inventories 2. Recognition and measurement

9 9 PwC Inventories – Initial recognition Initial recognition shall normally take place at the date of acquisition or date of entry shall correspond to the date on which the ownership of the inventories is transferred to the E.C., which generally corresponds to when delivery of the goods is accepted. –For simplification purposes this may during the year be when the invoice is received Cut-off and reporting at year-end: –If booking based on invoice, regularise any discrepancies between invoicing and delivery/transfer of ownership –Investigate specific contractual provisions determining title (e.g. FOB terms: shipping or destination) –Consignment inventories (held by custodians)

10 10 PwC Costs to be included Cost of Purchase Other Costs Cost of Conversion includes: - rebates - tax (customs/VAT) - transport - handling costs attributable to the acquisition Direct costs, e.g. direct labour Fixed & variable production overheads Any other costs that are incurred in bringing the inventories to their present location and condition All costs contributing to bring inventories to their present location and condition

11 11 PwC Costs to be excluded Abnormal amounts of wasted materials, labour or other production costs Storage costs –Unless those costs are necessary in the production process prior to a further production stage Administrative overheads that do not contribute to bringing inventories to their present location and condition Selling costs

12 12 PwC Cost Formulas Specific identification: –for items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects Global methods –First in First Out (FIFO) formula: assumes that the items of inventory that were purchased or produced first are sold first –Weighted Average Cost (WAC) formula: the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period Consistency required across each type of inventory

13 13 PwC Worked example – Inventory costing Inventory: + during year NInventory: - during year n DateQ and (P)CostDateQAmount Beginning inventory 100 units (320)32,000 March 1250 units (341)85,250April 1(230)? July 1200 units (343)68,600September 1(120)? October 1100 units (346)34,600November 1(100)? December 150 units (347)17,350 Total in600 units205,800 Total700 units237,800(450)? Closing inventory:250 units

14 14 PwC Inventory costing - FIFO Inventory: + during year NInventory: - during year n DateQ and (P)CostDateQAmount Beginning inventory 100 units (320)32,000 March 1250 units (341)85,250April 1(230) 100*(320)+130 *(341) July 1200 units (343)68,600September 1(120)120*(341) October 1100 units (346)34,600November 1(100)100*(343) December 150 units (347)17,350 Total in600 units205,800 Total700 units237,800(450)151,550 Closing inventory:250 units = 86,250

15 15 PwC Inventory costing - WAC DateMovementsInventories QCost/unitValueQCost/unitValue January , ,000 March , = 117,250/350117,250 April 1(230)335(77,050) ,200 July , = 108,800/320108,800 September 1(120)340(40,800) ,000 October , = 102,600/300102,600 November 1(100)342(34,200) ,400 December , = 85,750/25085,750 Total out:450 units152,050Closing inventory:85,750

16 16 PwC The debits and credits Inventory is a current asset Inventory is expensed… …when the related revenue is recognised What are the Dr and Cr involved in a purchase of inventory?

17 17 PwC Two methods of accounting Stock ledgers – each movement in or out is accounted for individually; the level of inventories is known at each precise moment in time Periodic stock counts – inventories get adjusted based on periodic counts of physical inventory

18 18 PwC Stock ledgers Using the FIFO method # ins # Dt : 6#Purchases of goods (economic outturn account) : Ct : 4#Suppliers Dt : 3 # Inventories (balance sheet) Ct : 6#Movement in inventories (economic outturn account) # payment of suppliers # Dt : 4Suppliers Ct : 5#Cash # outs # Dt : 6 # Movement in inventories (economic outturn account) Ct : 3#Inventories (balance sheet)

19 19 PwC Periodic stock counts Throughout the year : # ins # Dt : 6#Purchase of goods (economic outturn account) : Ct : 4#Suppliers # payment of suppliers # Dt : 4#Suppliers Ct : 5#Cash At year end : # reversal of beginning balance # Dt : 6#Movement in inventories (economic outturn account) Ct : 3 # Inventories (balance sheet) # recording of final balance # Dt : 3#Inventories (balance sheet) Ct : 6#Movement in inventories (economic outturn account)86 250

20 20 PwC Inventories – Subsequent measurement Cost may not be recoverable when: –damaged –obsolete –increased costs of completion –selling price is reduced Measure inventories at lower of: Cost and Net Realisable Value

21 21 PwC Net Realisable Value Selling price X Trade discounts(X) Costs to completion(X) Marketing, selling and distribution costs(X) Net realisable value X Net Realisable Value The estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale Use replacement cost when the economic benefits Or service potential cannot be acquired in the market

22 PwC Inventories 3. Disclosures

23 23 PwC Key disclosures Accounting policies (including cost formula used) Balance sheet –Carrying amount of inventories (on face of BS) –Analyse inventories by classification (e.g. raw materials, finished goods etc…) Economic outturn account –Cost of inventories expensed in period Other

24 PwC Inventories 4. E.C. specific implications

25 25 PwC Current accounting V. IPSAS Compliance issueCurrent accounting policyRevised accounting policy Nature and definition of inventory itemsHeld for sale or for internal use Differentiate between inventories, fixed assets and expenses Office supplies Other consumables Material for building maintenance Scientific material Publications Inventories Expenses Inventories EAGGF inventoriesDo not belong to the E.C. Pricing at year end Latest purchase price, except: Publications (1/3 of sales price) Fissile matters (cost of acquisition) FIFO NRV: Goods for sale Goods to be distributed for free Lower of cost or marketLower of cost or NRV Lower of cost or replacement cost

26 PwC Inventories 5. Questions


Download ppt "PwC Inventories 2 PwC Overview of session 1. Scope of application and key concepts 3. Disclosures 5. Questions 4. E.C. specific."

Similar presentations


Ads by Google