Inventory

Inventory

Assets held: for sale in ordinary business, in the process of being produced for sale, materials and supplies used in production

State whether it is PPE if it doesn’t meet the criteria of inventory

COGS calculation

= Opening inventory + purchases - ending inventory

Gross profit

Sales less COGS

Gross margin

= Gross profit / sales

Inventory markup

Amount seller adds to cost to get selling price

Percent = (selling price - cost)/cost

Inventory initial measurement (IAS 2)

Costs include all costs of purchase (purchase price, shipping, unrecoverable taxes), conversion (labour, overhead), and other costs incurred to bring inventories to their present location and make them sellable.

No costs can be added once in sellable form

Dr. Inventory + Dr. GST / Cr. AP

Early settlement of inventory

Can be netted under net method (Dr. purchase discount) or recorded by gross method (Cr. Inventory)

Merchandise inventory

Includes goods purchased for re-sale. Follows IAS 2.

Costs of purchase has discounts and rebates deducted from costs of purchase

Manufacturing inventory

Considers production overhead made of fixed and variable costs - IFRS uses absorption costing where variable costs are allocated based on use and fixed costs use a predetermined rate

Dr. FG inventory / Cr. WIP Inventory (Cost * # of units)

Dr. COGS / Cr. FG Inventory (Expense costs: begin + FG - ending)

Dr. COGS / Cr. Manufacturing overhead (Expected # - Actual # * FC/unit)

Subsequent measurement of invnentory (IAS 2)

Measure at lower of cost and net realizable value (NRV)

NRV is estimated selling price in ordinary course of business. Can be recoverable amount in cases

Impairment of inventory - 2 methods

Occurs when NRV is lower than cost and inventory is written down to match

Direct: Dr. COGS / Cr. Inventory

Indirect: Dr. Loss on inventory / Cr. Allowance

Can be reversed up to original value/cost

Cost methods for COGS (3)

Specific Identification - Costs of specific items sold during period are charged to COGS

FIFO - First in, first out

Weighted Average

LIFO not permitted under IFRS

Differences under ASPE 3031

IFRS requires borrowing costs be capitalized, under ASPE there is a choice on whether to capitalize or expense