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IAS 2 Inventories requires inventory to be valued at the lower of cost and net realisable value. Cost includes all expenditure incurred in bringing the items to their present location and condition.
Which of the following would not normally be included as part of the cost of inventory in a manufacturing business?
1) Costs of transporting finished goods to customers’ premises
2) Storage costs for raw materials, stored at the premises of a third party.
3) Discounts allowed for prompt payment by customers
4) Discounts received for bulk purchases.
i thought the answers are 2,3
but the correct ones are 1,3.
Storage costs must be ignored based on what i learnt from books.
could you possibly explain to me the reason?
First of all, can you see why option 1 is excluded?
As for storage costs, these relate to our inventory in the hands of third parties (the storage company) and fall nicely into that definition that you have quoted “Cost includes all expenditure incurred in bringing the items to their present location and condition”
What costs have been incurred in bringing this inventory of ours into the present location and condition (at the storage company’s premises)?
Does that resolve your problems?
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