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Inventory Case Study - Ifrs

In: Business and Management

Submitted By tenshinchan
Words 356
Pages 2
Mary Wang
International Financial Reporting
Inventory Case Study

In the US GAAP, the broad principle given for inventory cost is “the sum of the applicable expenditures and charges directly or indirectly incurred bringing an article to its existing condition and location.” The paragraphs which we looked at included different principles to follow when trying to pin down inventory costs such as guidelines to determine variable overhead costs, fixed overhead costs and normal production capacity as well as costs that are not allowed to be included in inventory. The IFRS takes a much more reality based approach instead of a theoretical one. It describes the cost of inventory to be “all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.” It includes guidelines for the cost of purchase, cost of conversion, other costs and costs that cannot be included in the cost of inventory. All of these are much more specific than the guidelines included in the paragraphs in US GAAP.

The Cost of Inventory

US GAAP | IFRS | Acquisition Cost | Cost of Purchase (e.g. purchase price, import duties, other taxes, transport and handling) | Production Cost | Cost of Conversion | * Variable Cost | * Variable Cost | * Fixed Cost | * Fixed Cost | | Other Costs (e.g. cost of designing) | Excluded Costs | General & Administrative Expenses | Abnormal Amounts of Wasted Material | Selling Costs | Storage Costs | | Administrative Overheads | | Selling Costs |

From what I have analyzed regarding inventory costing, it would appear that IFRS would be more rules base in this specific instance. Though in general, IFRS would appear to be more theory-based, in these paragraphs, IFRS includes much more specific rules on what needs to be included in inventory costing and what needs to be

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