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Hope u are doing good sir.
sir what is inventory provision, i have not seen this concept in FR, can u explain it, and how it differs warranty provisions.
how is inventory provision a present obligation.
thanks.Wherever you are seeing this term IGNORE it has misleading and technically OBSOLETE since the publication of IAS 37 more than 20 years ago (in 1998!)
A provision is a liability and IAS 37 does NOT apply to credit balances that reduce assets amounts – these are called “allowances” – e.g. for expected credit losses (against receivables), depreciation/amortisation (against non-current assets), obsolescence, etc (against inventory).
The distinction between, for example, a warranty provision (a liability) and an allowance to write down inventory (a credit off-set against the cost of inventory to present a the lower of cost and NRV in the statement of financial position) is FUNDAMENTAL to financial reporting – please confirm you understand me.
I’ve understood the point now, but this concept of allowance for inventory is new to me.
does it work just like allowance for receivable.
there are audit risks involving inventory provisions, I will ignore these.
thanks for ur detail expansions sir, I really appreciate it.
I am astonished that the concept of an allowance for inventory is new to you. Even if you have not studied FR, this is assumed knowledge of FA. Making an allowance is how inventory is “written down” from cost to be presented in the financial statements at the lower of cost and NRV.
It works along the same principles as an allowance for receivables in that the allowance is an accounting estimate that requires a best estimate at the reporting date and is offset against the “gross” asset amount for presentation in SoFP. If not requires, an allowance can be “written back” under IFRS. The difference is in the detail – NRV is determined in accordance with IAS 2 – an expected loss allowance is calculated in accordance with IFRS 9 (which is not examinable in AA).
Got it sir. i will google it for more info.
I’ve understood sir thanks.could u please refer on management letter, which chapter on the note can I find it
If you download the notes rather than view online you should be able to search for key terms “management letter” is first mentioned on page 54 – from where it cross-referenced to Chapter 12.
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