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Lifo vs Fifo

In: Business and Management

Submitted By shamim95
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INVENTORIES
QUESTIONS:
1. Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include? 2. According to IAS-2, what are the components of non-components of Inventory Cost? 3. Distinguish between ‘Perpetual’ and ‘Periodic’ system for recording Inventory? Show proper examples. 4. What are the Cost Flow Formulas/Assumptions allowed in IAS-2 for maintaining Inventory? Show examples. Which one should be used in what situation? 5. Explain LIFO? Why LIFO is not permitted in IAS-2. Do you think repealing LIFO was wise decision of IASB? Discuss with its advantages & disadvantages. 6. What is NRV of an asset? When should company write down its inventories to NRV? Explain write-down processes with illustrations.

* Write down the definition of ‘Inventory’ under IAS-2. What physical materials does ‘Inventory’ include?

* Paragraph-6 of IAS-2 defines inventories as following- 1. Held for sale in ordinary course of business 2. In the process of production for such sale 3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.
This definition implies that 3 types of physical materials are to be included in ‘Inventories’- a) Raw Materials b) Work in process c) Finished Goods

* According to IAS-2, what are the components of non-components of Inventory Cost? * Components of Inventory Cost: 1) Cost of Purchase
Includes- purchase price, import duties, taxes and transport & handling cost etc. which are directly attributable to the acquisition of inventory
Excludes- Trade discounts, rebates etc. 2) Costs of Conversion
Includes costs that are directly related to the units of production, such as labor. 3) Other costs incurred in bringing the inventories to their present condition & location...

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