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Hello,
I am working my way through some past papers as revision for the December SBR exam. I have come across the following question (December 2018 – “Moyes Group”, question 1):
“Goods were purchased for Dinars 80 million cash when the exchange rate was $1:Dinar 5. Moyes had not managed to sell the goods at 30 September 20X8 and the net realisable value was estimated to be Dinar 60 million at 30 September 20X8. The exchange rate at this date was $1:Dinar 6. The inventory has been correctly valued at 30 September 20X8 with both the exchange rate and impairment correctly included within cost of sales”.
According to the answer, there is a loss of $6 million recorded in the P&L which I can (mathematically) understand. What I perhaps don’t understand is why the inventory is “revalued” to the rate of 30 September 20X8 (i.e. $1:Dinar 6).
According to my understanding, inventory is a non-monetary item and therefore it should not be revalued. Is it that the act of impairing the inventory has the same impact as “changing” the date of fair value measurement? On the other hand, if we are talking about group accounts, surely any differences are then taken through OCI?
Any help would be much appreciated.
Thanks!
Perhaps I should add that according to the solution the $6m loss to P&L is comprised of:
(Dinar 80m/5) – (Dinar 80m/6) – $2.7m being exchange loss
(Dinar 80m/6) – (Dinar 60m/6) – $3.3m being impairmentThanks
This is a CF question.
Because of the time pressure in the exam, I normally suggest that students just show the movement in inventory (6) as a single entry in the CFS.
Strictly speaking the examiner is right. The impairment is a TRANSACTION (so the transaction rules apply.
Inventory, although non-monetary, has been revalued to NRV, so it would have been remeasured at the balance sheet exchange rate.
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