Chapter 10: Inventory (IAS 2) and Agriculture (IAS 41)

The notes' rule: inventory is measured at the lower of cost and net realisable value (NRV). Cost is the cost incurred in bringing the inventory to its present condition and location: materials, labour and manufacturing overheads based on normal output.

Inventory (valuation). Neil paid $3 per unit for the raw materials of its products. To complete each unit incurred $2 per unit in direct labour. Production overheads for the year based on normal output of 12,000 units was $72,000. Due to industrial action only 10,000 units were produced and 1,000 units were in inventory at the end of the year. As a result of the industrial action some units were badly stored and became damaged. It is estimated that 200 of the units will now only be sold for $12 each after minor repairs of $2 each. What figure for closing inventory would be shown in the statement of financial position?

Inventory A, B and C. A manufacturer is valuing its inventory at the reporting date and has identified the following items to be valued:

Inventory A - work in progress consists of 10 items that have cost $2,500 to produce in total. It is expected that each item will sell for $280, where direct selling costs are expected to be 5% of the selling price, and it is estimated that costs to complete would be $10 per unit.

Inventory B - the company has 1,000 units costing $10 each, where the packaging has been damaged. It will cost $2,000 to repackage all of the units allowing them to be sold at $11 each.

Inventory C - the company has produced inventory costing $7,000 that it is expecting to sell at $10,000 to one of its customers. Changes in production methods mean that the goods are cheaper to produce and will only cost $6,000 in the future.

At what amounts should the inventory be valued in the financial statements?