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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Contents
13.1.1 Extract from FRS 102 – Section 13.1 – 13.3.
13.2 Measurement of inventory.
13.2.1 Extract from FRS 102 – Section 13.4-13.4A.
13.2.2.1 Inventory other than inventory held at or nominal consideration.
13.2.2.2 Inventory held at no or nominal consideration.
13.2.2.3 Definition of no or nominal consideration.
13.3.1 Extract from FRS 102 – Section 13.5-13.7.
13.3.2.1.1. Irrevocable taxes and taxes incurred only an extraction from warehouses.
13.3.2.2 Stock purchased on beyond normal credit terms.
13.3.2.4 Non-exchange transaction.
13.4 Cost of conversion – production overheads.
13.4.1 Extract from FRS 102 – Section 13.8-13.11 and 13.14-13.15.
13.4.2.1 Cost to be recognised in inventory – production overheads.
13.4.2.1.2 Illustration of allocation of overheads to production – normal capacity.
13.4.2.2 Joint products and by-products.
13.5 Cost excluded from inventories.
13.5.1 Extract from FRS 102 – Section 13.13.
13.5.2.5 General and administrative overheads.
13.6 Cost measurement techniques.
13.6.1 Extract from FRS 102 – Section 13.16-13.18.
13.6.2.4 Most recent purchase price.
13.6.2.5.1 Non-interchangeable goods.
13.6.2.5.2 Interchangeable goods.
13.6.2.5.4 Requirements for consistency.
13.7 Impairment of inventories.
13.7.1 Extract from FRS 102 – Section 13.19.
13.7.2.2 Assessing the selling price less cost to sell
13.7.2.3 Post period end events and impairments.
13.7.2.4 Reversal of impairments.
13.8 Derecognition as an asset
13.8.1 Extract from FRS 102 – Section 13.20-13.21.
13.9.1 Extract from FRS 102 – Section 13.22.
13.9.2.3 Notes to the financial statement.
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13.5 Cost excluded from inventories
13.5.1 Extract from FRS 102 – Section 13.13
13.13 Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary during the production process before a further production stage;
(c) administrative overheads that do not contribute to bringing inventories to their present location and condition; and
(d) selling costs.
13.5.2 OmniPro comment
13.5.2.1 Overview
Section 13.13 of FRS 102 makes it clear that any selling costs, abnormal wasted material, labour and administration overheads not contributing to bringing the inventory to its saleable condition should not be absorbed.
13.5.2.2 Abnormal costs
An entity will need to ensure a detailed review is carried out on the costs included in fixed and variable production overhead to ensure no abnormal costs are included as is made clear by section 13.13(a) of FRS 102. Examples of abnormal costs would be;
- once off write off of inventory,
- over usage of material due to testing being carried out by a new machine,
- downtime in production due to unscheduled maintenance,
- labour costs incurred when employees were on strike etc.
13.5.2.3 Selling costs
No selling costs should be absorbed in stock which includes distribution costs to the customer. This is made clear in section 13.13(d) of FRS 102. However, where an entity incurs costs in transporting stock from its factory to its sales depot, whether that be in the same country or another country, then such costs can be absorbed in the cost of inventory as it meets the definition of it being a cost of bringing the inventory to its present location. If this were transport to the customer site, it could not be absorbed. For large retailers where they move goods from a central distribution warehouse to points of sale this would usually be allowed to be absorbed in inventory.
13.5.2.4 Storage costs
In the majority of circumstances storage should not be absorbed within inventory as it does not contribute to bringing the inventory to its present condition and location. This is made clear in section 13.13(b) of FRS 102. Hence warehousing of inventory or overheads of retail supermarkets could not be absorbed in inventory. However, for some entities where storage is necessary to produce the final product, storage costs can be absorbed. Examples of this would include; whiskey which must be stored for long periods for it to mature, grain purchased directly from the field (undried grain) which has to be dried out for a number of months before it is ready for onward sale. In the case of grain, after a set period of months when the grain is dried, absorption must cease.
13.5.2.5 General and administrative overheads
As per section 13.13(c) of FRS 102 only administrative overheads that contribute to the bringing of inventories to their present condition and location can be capitalised. When assessing whether any administrative overheads should be absorbed in inventory, care should be taken. The administrative overheads should be split into functions and an analysis provided of how the departments support the production process and an allocation made based on the contribution they make. An accounting department for example will normally support the following functions:
- Marketing and distribution costs – costs for analysing sales and controlling the sales ledger
- Production – paying invoices, ordering, invoice matching, providing management accounts
- General administration – preparation of management accounts for production, budgets, costing and managing cash resources.
Generally, management costs cannot be allocated however in smaller entities where a lot of work is done by the same person then a reasonable allocation can be made.
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Examples
Example 2: Inventories held for distribution.
Example 3: Cost of inventory – rebates.
Example 3A: Purchase with unusual credit terms.
Example 3B: Non-exchange transaction.
Example 4: Allocation of overheads to production with overheads higher than normal:
Example 6: Raw material less than cost but finished good not
Example 7: Post balance sheet events and requirement for impairment
Example 8: Post balance sheet events and requirement for impairment
Example 9: Derecognition of inventory.
Example 10: Extract from an accounting policy note and required inventory disclosures.
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