1. Inventory

2. Accruals requires that costs and revenues are recognised in the accounts when incurred or earned – not when the money is received or paid. Closing inventory NOT included in cost of sales as it goes into next accounting period

3. Valuation of Inventory IAS 2 The lower of Cost or Net Realisable Value NRV Cost and NRV are done for each item and compared to determine the lower

4. COST Cost includes – Cost of purchase Materials, import duties, freight Less Trade Discount (not settlement discount) – Cost of conversion Direct material, direct labour, direct expense Production overheads – L&H, Rent, Rates, etc

5. COST working Item A Cost of purchase €2000 Less Trade Disc €100 Cost of conversion €50 Total Cost €1950

6. NRV The revenue expected to be earned when the goods are sold, less and further costs Selling Price – Less Trade Discount on Sale – Less further costs of completion – Less Marketing, Distribution, Selling Costs = NRV

7. NRV working Item A Selling Price €3500 – Less Trade Discount on Sale€ 50 – Less further costs of completion€ 120 – Less Marketing, Distribution, Selling Costs €40 = NRV€3290

8. IAS 2 Rules for Valuing Inventory First In First Out FIFO Average Cost AVCO – Periodic Weighted Average – Continuous Weighted Average

9. FIFO Units€ Per Unit 1 JunePurchases1005 3 JuneSales10 4 JunePurchases2006 5 JuneSales170 Total Purchases = 300 units Total Sales = 180 units Closing Inventory = 120 units Assumed to be part of the last purchase Valued at €6 per unit

10. FIFO Units€ per Unit MarchSales700€6 3 MarchPurchases400€3 8 MarchPurchases400€2.60 18 MarchPurchases400€3.20 Purchases 1200 – sales 700 = 500 units closing 400 x 3.20 = 1280 100 x 2.60 = 260

11. Statement of Profit & Loss Sales700 x 64200 Less Cost of Sales Open Inventory- 3/3 Purchases400 x 31200 8/3400 x 2.601040 18/3400 x 3.201280 3520 Less Closing Inventory400 x 3.201280 100 x 2.60260(1540) Cost of Sales(1980) Gross Profit2220

12. AVCO – Periodic Weighting Units€ per Unit 1 JunePurchases1005 3 JuneSales10 4 JunePurchases2006 5 JuneSales170 Purchases 300 – sales 180 = 120 units closing Doesn’t consider dates of Purchases or Sales = Assume all on last date of period Average Purchase Cost 100 x 5500 200 x 61200 Total 3001700 1700 / 3005.67 Closing Inventory 120 x 5.67680 Cost of Sales 180 x 5.671021

13. AVCO – Continuous Weighting Units€ per UnitValue 1 JunePurchases1005500 3 JuneSales(10)5 (500/100)(30) 90450 4 JunePurchases20061200 2901650 5 JuneSales(170)5.69 (1650/290)(967) Closing120683 The average price is updated after every transaction Sale unit cost = inventory to date / units to date Cost of Sales = 50 + 967 = 1017

14. AVCO – Continuous Weighting Units€ per UnitValue 3 MarchPurchase40031200 8 MarchPurchase4002.601040 8002240 18 MarchPurchases4003.201280 12003520 MarchSales7002.93 (3520/1200)(967) Closing5001465 The average price is updated after every transaction Sale unit cost = inventory to date / units to date Cost of Sales = 967