IAS 2

1. and 3. are specifically excluded by the IAS 2. and 6. are not excluded by the standard but IAS 2 does not apply to the measurement of inventories held by producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products (to the extent that they are measured at net realisable value (above or below cost) in accordance with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or loss in the period of the change) So it looks like your answer 4 and 5 is correct

Thanks Mike, I figured so too. Another question though, I realise that import duties form a part of inventory cost, however, what about import duties that are reimbursable from a taxing authority, do we still recognise it in the cost? Thank you

Absolutely not! How can it be classed as a cost when there's no outflow of cash / other asset?

Thanks Mike, I get it

You're welcome

Dear All Thank you. But why does '4. Maturing wine in the cellars of a wine producer' apply to IAS2? Isn't it an agricultural product as well? Same as Lumbers? Thank you Elmer

Extract from IAS 41... ..."This Standard is applied to agricultural produce, which is the harvested product of the entity’s biological assets, only at the point of harvest. Thereafter, IAS 2 Inventories or another applicable Standard is applied. Accordingly, this Standard does not deal with the processing of agricultural produce after harvest; for example, the processing of grapes into wine by a vintner who has grown the grapes. While such processing may be a logical and natural extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity in this Standard." Extract from the financial statements of a wine producer "In accordance with generally recognized trade practice, maturing spirits inventories are classified as current assets, although the majority of these inventories ordinarily will not be sold within one year due to the duration of aging processes" OK?

Thank you very much for your quick reply! I understand now why the wine should be concidered. The Question initially asked by hameeda90 are copied from the Deloitte IFRS online trainer. I did it now by myself and I have to tag answers 4-6 as true to past the test with 100%. I have googled it again and found following explanation about the lumbers on a PWC pdf file describing the IAS41: "1.12 Is the produce or harvest from a biological asset another biological asset? No. The produce or harvest from a biological asset (for example, milk, tea leaves and lumber) is inventory. The harvested produce is transferred to inventory at fair value less costs to sell; it is thereafter accounted for in accordance with IAS 2, ‘Inventories’. However, while the produce is still growing or still attached to the biological asset, its value forms part of the value of the biological asset." The document is from 2009. Did anything change in the content of IAS2/IAS41 since 2009 which would explain the difference in the answers? Thank you Elmer

So did you choose 4, 5 AND 6 or just 5 and 6? Just looking again at option 6, it looks more and more like inventory to me! It wouldn't be if it were lumber still attached to the trees. I have no idea what reason I could have been dreaming of to exclude it

I chose the answers 4, 5 and 6. Thank you anyway, this discussion enlightened me a bit in this IAS Standard.

You're welcome

dear , can you please give the answers of the quiz. i m trying since so long but i am getting 50% maximum. only eight questions are there please answer them for me. Deloitte IAS 2 quiz

Hi, How am I meant to know which questions I am meant to be looking at when you have not told me the ones your are getting right/wrong? Thanks

dear , can i get answer to remaining question . i m trying since so long but i cant find the correct answers for below 1. Which of the following are accounted for under IAS The cows of a cattle farmer The gold mineral reserves of a mining company WIP of a long-term construction contract Maturing wine in the cellars of a wine producer Clothing in the warehouse of a retailer Lumber of a wood distributor 2. Lumberjacks plc regularly rents some of its equipment to its customers. Should Lumberjacks classify this equipment as inventory? Yes, because the customer has the ability to use the equipment. No, because the equipment is rented and not sold. Lumberjacks still owns the equipment. 3. Which of the following are most likely to be classified directly as the components of inventory of an accounting firm prior to revenue being recognized under IAS 18? Salaries of the client service accountants Costs of brochures sent directly to clients Travel costs to client locations An allocation of salary costs of technology support staff assisting client service accountants with computer auditing techniques An allocation of salary costs of the firm's accounts payable clerk Costs of material used to prepare clients' reports 4. How should cash discounts that are received for the purchase of inventory be recognised? Revenue Reduction of the cost of inventory It has no impact on the measurement of inventory 5. Just Jeans Ltd is a clothing retailer. Which of the following costs would it record as a cost of purchase? Costs to ship the jeans from a supplier to the warehouse Costs to ship the jeans from the warehouse to a retail store Reimbursable import duties from a taxing authority Storage costs of the jeans while in transit to the warehouse Salary of the purchasing manager in the accounts department 6. The UK subsidiary of YeastFeast & Co measures raw material inventory using the FIFO method. The French subsidiary of YeastFeast & Co measures the same raw material inventory using the weighted average cost method. Is this permitted under IAS 2? No. Costs formulas should be consistently applied to all inventories similar in nature. Yes. Different cost formulas can be applied to inventory nature as long as the methods used are either FIFO or the weighted average cost. 7. In which of the following circumstances would an inventory write down be recognised or reversed? When inventory is damaged or has become obsolete and can no longer be used When prices of specific raw materials have declined but the prices of the related finished product remain above its cost to complete When the selling price less the selling costs of a finished product (NRV) is less than its carrying value When, at year-end, a company anticipates that market prices will recover for inventory that is currently carried at net realisable value None of the above 8. You are having a debate with the assistant about certain costs that can be included in the cost of inventories, as he is unsure of which ones specifically. What would you tell him could be included? Storage costs of material to be used in production Transportation costs to move inventory from one retail store to another Depreciation and maintenance of production equipment Interest expense incurred during the production period of inventory Abnormal production costs 9. You are mentoring trainee accountants. You asked them to write a number of statements about IAS 2. Which have they got correct? Upon the sale of inventory an entity must recognise an expense for the carrying amount of the inventory Inventories can be allocated to other asset accounts The amount of any write-down of inventory should be deferred and amortised LIFO can be used as a cost formula to measure inventory in IAS 2 Allocation of fixed overhead to inventory is adjusted using the level of production as a basis Unallocated overheads are deferred so they can be allocated in future periods 10. Why is WIP arising out of construction contracts outside the scope of IAS 2? WIP arising out of construction contracts are not inventory There is a specific standard dealing with WIP arising out of construction contracts (IAS 11) Contract costs may fall into different accounting periods

Hi, I am not here to fully answer questions. You need to have attempted the question first before I then offer any answers. I can then point out where you might be going wrong and this will then help improve your understanding of the topic. If you show me what you have done for the questions above and what your answers are then I can gladly help you out. Thanks