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I have a question about inventory.
Company A entered a contract to supply good B to C with price 10
In the year, A purchased material with price 5. At the year end, A estimate that the cost to produced is 11.
So NRV = 10 – 11 = -1.
My question is How do we account for the material with price 5 ?P/s: I think we have to use both IAS 37 for onerous contract and IAS 2
cost to produce plus the materials purchased =5+11=16
cost includes all things than require the goods to be sold this includes the material costsIf we’re talking about the value of the raw material inventory, then the closing inventory valuation is at $5 unless even that purchase price has now been overtaken by a supplier’s price reduction so the retail value of that raw material inventory would be at the new reduced price
If the inventory is finished / processed goods, then cost of those processed goods is $5 + $11 = $16 but realisable value is only $10 per the contract so the value of the closing inventory of processed goods will be $10
It’s possible that your figure of $11 includes the purchase cost of $5 in which case the value of the closing inventory of finished goods would be the lower of nrv of $10 and costs incurred in bringing the inventory to its current location and condition ie $5 + $6 = $11
So, again the value of the closing inventory of finished goods would be $10
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