Question

000 Tinancial Reporting. a) A seda itd inccurve the following cost in its manufacturing opora hones Cost of materia purchasa 90,000 Import duties Trade Discount @10% of purchase Cost Cash discount 500 recoverg ble taxes 1,000 Salary of factory plant operator 2,500 Direct Labour 5, 000 Salary of factory Supervisor Cost of expected production losses 800 Administrative Overhead (Note) 76,000 Cost of Storage of raw material for further processing 2,ooo Marketing cost 6,006 NOTE : The Cost accountant of the company administrative over heads are non-productive Determine the inventory of Asada Ltd in Accordance with IAS 2 inventories REQUIRED: cost of

Answer 1

As per IAS 2

Cost of inventory

Cost of acquisition,manfacture,echange and other expenses are included in inventoris that have made it possible for the inventories as they are in current position an stipulation. When the word purchases mentioned in inventories , it consists of expanes that are made for purchase , transport, import duties , handling taxes and other expenses that are responsible or have direct impact on procurement of finished production . There are several factors which contribute reduction of prices like rebates in taxes, discounts in trading , etc

Certain costs  NOT included in the valuation of inventory

* Abnormal wastage of material , labour and other production costs

* Storage costs if they are not essential for production process

* Selling and distributions costs

* Administrative costs that are not involved in brining the inventory to its present condition and location

Calculation of Cost of Inventory

Particlulars Amount

Cost of Purchase 20,000
Add : Import Duty 400
Less; Trade Discount (20,000*10%) (2000)
Less : Cash Discount (500)
Add: Irrecevorable costs 1000
Add: salary of factory plant operator 2500
Add: Direct labour 5000
Add: Cost of expected prodction losses ( Normal Loss ) 800
Add : Adminstrative Overhead (16,000*40% ) 6400
Add : Storage costs essential for furthur processing 2000

Total Cost of Inventory 35,600