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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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13.8 Derecognition as an asset
13.8.1 Extract from FRS 102 – Section 13.20-13.21
13.20 When inventories are sold, the entity shall recognise the carrying amount of those inventories as an expense in the period in which the related revenue is recognised.
13.20A When inventories held for distribution at no or nominal consideration are distributed, the carrying amount of those inventories shall be recognised as an expense.
13.21 Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are accounted for subsequently in accordance with the section of this FRS relevant to that type of asset.
13.8.2 OmniPro comment
13.8.2.1 Overview
Section 23, the revenue standard is the key basis for when inventory is derecognised and therefore are recognised as a cost sale. Usually for goods type sales, revenue is recognised when the risks and rewards of ownership pass to the purchaser which is usually when it is delivered to the customer or it can be based on legal title driven by shipping terms. Once the risks and rewards transfer, a sale is recognised and at the same time the inventory is derecognised as an expense in the profit and loss. This made clear by section 13.20 of FRS 102. See 23.6.2 in section 23 for certain rules in relation to the recognition sales.
As per section 13.20A of FRS 102 inventories held for distribution at no or nominal consideration are derecognised from the balance and into the profit and loss when they are used/distributed. Note if sections within FRS 102 permit; inventory many may not need to be recognised as an expense, instead it can be capitalised (section 13.21 of FRS 102) For example inventory used to build property, plant and equipment (self-constructed assets) Section 17 of FRS 102 permits the treatment.
13.8.2.2 Consignment stock
Where a company holds consignment stock, this stock is not recognised by the purchaser as the risks and rewards of ownership do not pass until the goods are used by the purchaser. Therefore by definition any sale on a consignment stock basis cannot be recognised by the seller and as the sale cannot be recognised, then the inventory is not derecognised from the sellers balance sheet.
Example 9: Derecognition of inventory
Company A delivered consignment stock to Company B’s premises. Company B uses this stock in the production process. Title does not transfer until Company B takes the stock from the warehouse. Company A could not recognise a sale on the transfer as the risk and rewards of ownership has not passed to Company B. Therefore Company A could not derecognise this inventory. Only when Company B takes some of the inventory from the consignment stock and once Company A is informed of this can revenue be recognised by Company A and therefore inventory can be derecognised by Company A and recognised as inventory by Company B.
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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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