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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-13/” type=”big” color=”red”] Return to Section 13 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Section 13: Inventories
Section 13 considers what should be included within the cost of inventories, how inventories should be measured, the methods to be used to determine cost and any disclosure requirements.
Scope and definition
Extract from FRS 102 – Section 13.1
13.1 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 materials or supplies to be consumed in the production process or in the rendering of services.
OmniPro comment
Based on the above definition inventory includes all types of goods purchased and held for resale including merchandise purchased by retailers. It encompasses finished goods (including any directly related manufacturing or labour costs), work in progress, materials and supplies awaiting use in production. In relation to part (c) this would relate to spare parts which are used within the same accounting period. If not they should be accounted for as property, plant and equipment.
In relation to point (a) above, the important thing is that you consider whether the asset is held in the ordinary course of business. For example, if a construction company purchased land or property and the business of the company is to develop this, this is treated as inventories and not investment properties/property, plant and equipment.
Spare parts
Section 17.5 which is the standard that deals with property, plant and equipment makes it clear that -spare parts are classified as property plant and equipment when they are expected to be used during more than one period or only used in connection with an item of property plant and equipment. Where this is the case the spare part is depreciated over its useful life which cannot be more than the useful life of the main asset for which the spare parts are utilised. Therefore, care needs to be had to ensure spare parts which are going to be used during more than one period should be classified as PPE as opposed to inventory.
Example 1: Spare parts
A manufacturing company holds a significant stock of critical spare parts for its production equipment. Given that these spare parts are specific to the production equipment itself, and given that they will be used over more than one period, these assets are classified as PPE and depreciated over there expected useful life. In reality on transition the value if previously included in inventory should equal the cost to be transferred to PPE. A similar example would be where plastic boxes are used for carrying and distributing the main products which are used again and again and are not provided to customers on a long term basis. These are classified as fixed assets as opposed to spare parts.
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