IAS 2 Return of Inventory that can be resold

Hi there, I hope you’re well.

I just had a question about IAS 2, I hope that’s okay?

Assuming a large plc is using the FIFO method of inventory costing with a perpetual (instantly updated) inventory system, if a customer were to return inventory to the business that could then be resold, it would have the effect of increasing the inventory the business has available to sell immediately.

When the inventories are returned, as we are using the FIFO method, are these items in particular treated as being the first into the business? For example:

I buy the inventory on Jan 1st
I sell that particular item on Jan 15th
I then receive the item back on Jan 30th

When the inventories come back into the business, do we treat them as at their original date of availability (Jan 1st) or the date we got them back (Jan 30th).

Of course, over the long run it hardly makes a difference, but in the short term I can’t help but think a business could use this as a method of creative accounting, especially if the earlier acquired inventory proved to be more expensive, they could artificially sell it and return it at a point where its unlikely to be sold by the reporting period end, meaning it won’t forming a part of COGS that year but would maximise inventory value in the SOFP.

It would have a higher chance of becoming a part of COGS however, if we were to treat it as being available on Jan 1st, as technically it would be the very next item in line to be sold.

This would not only therefore have an effect on a perpetual inventory system, but also a periodic one, as at the end of the reporting period, the returned items would be seen as acquired later during the year.

Sorry for the long question. I just wanted to know if IAS 2 covers this, or if this is the choice of the business. Thanks in advance.

Also, if there is a limit on the amount of questions I am able to write on the forum, please let me know, as I’m new here 🙂 .