IAS 2 Inventories |

IAS 2 Example Contractual volume rebates

IAS 2 Example Contractual volume rebates provides an example calculation with regard to the costs of inventory in combination with contractual volume rebates.

The Case

On 1 January 20X1 Entity A, a retailer, enters into a 2-year contract with a supplier of product X. Under the agreement, Entity A purchases product X for $100 per item. The agreement provides that Entity A will receive a $5 rebate for each purchased item (applied retrospectively to all purchases) if it purchases at least 10,000 products over the 2-year contract term. On 1 January 20X1, Entity A purchased 6,000 products. Sales to customers were 5,500 (Q1 1,150, Q2 1,250, Q3 1,450, Q4 1,650), the sales price was increased every quarter with $2/product, starting … Read more

Product costs and period costs

A manufacturer’s product costs are the direct materials, direct labor, and manufacturing overhead used in making its products. (Manufacturing overhead is also referred to as factory overhead, indirect manufacturing costs, and burden.) The product costs of direct materials, direct labor, and manufacturing overhead are also costs, assigned to inventory (work-in-progress and finished goods) since these are the necessary costs of manufacturing the products.

Period costs are not a necessary part of the manufacturing process. As a result, period costs cannot be assigned to the products or to the cost of inventory. The period costs are usually associated with the selling function of the business or its general administration. The period costs are reported as expenses in the accounting period in … Read more

Inventories – the highlights

See Inventories for IFRS for Small and Medium-sized entities, the complete IAS 2 Inventories standards is also available.

Inventory is also called stock in trade, or just stock.

The IFRS definition of inventory is brief, let’s add some juice (if that is possible in accounting, and off course it is possible!!) or look at it as being in business.

Inventories consist of the value of materials and goods held by an entity:

  1. to support production (raw materials, subassemblies, work in process),
  2. for support activities (repair, maintenance, consumables), or
  3. for sale or customer service (merchandise, finished goods, spare parts).

Inventory is often one of the largest items in the current assets category, and must be accurately counted and valued at the … Read more