The International Accounting Standards Board has developed this IAS 2, revised as part of its Project on Improvements to International Accounting Standards, which was undertaken due to the questions and criticisms received, regarding the Standards, from supervisors of securities, professional accountants and other stakeholders.
Which consists of reducing or eliminating alternatives, redundancies and conflicts between the Standards, as well as solving certain convergence problems and making other additional improvements. IN3 In the specific case of IAS 2, the main objective of the Board was a limited review in order to reduce alternatives for measuring inventories.
The term "inventories" is used throughout this Statement; In some countries, inventories are described as “stock and work in process”.
The most powerful tool in inventory control is tracking.
The Board did not reconsider the fundamental approach to accounting for inventories contained in IAS 2.
Reading, reviewing and adapting the International Accounting Standards is of vital importance, because these standards become the standards that govern our way of handling accounting. On the other hand, accounting, as a science and technique of financial and operational information of economic entities, must comply with ever greater demands. In particular, the realization of this material is based on the study of the International Accounting Standard 1 and 2 (IAS 1, IAS 2), which talks about the presentation of the financial statements, and the inventories for this, it was carried out a study of the objectives and purposes of the material contained in them in order to better understand the form of applicability of said regulations.
Lima, November 2015
INTERNATIONAL ACCOUNTING STANDARDS (IAS)
"IAS 2"
- CONTEXT - IAS 2:
International Accounting Standard No. 2 Inventories (IAS 2) replaces IAS2 Inventories (revised in 1993).
Advance application is advised. The Standard also replaces SIC-1 Uniformity - Different Formulas for Calculating the Cost of Inventories.
It entered into force as of January 1, 2005 and in Peru its application was mandatory as of January 1, 2006.
Figure 1: IAS 2 (INVENTORIES)
- DEFINITION:
This standard explains the treatment that should be given to inventories, the amount of cost that will be recognized as an asset and the treatment until the corresponding ordinary income is recognized. The standard provides guidelines for determining this cost, as well as for subsequent recognition as an expense for the year.
The International Accounting Standard No. 2 Inventories (IAS 2) is composed of:
- Assets held for sale:
Eg finished products
- Assets in the production process for sale:
Ex: Work in progress
- Assets to be consumed in the production process:
Eg: Raw material or for the performance of services (No.6).
The following term is used, in this Standard, with the meaning specified below:
Inventories are assets:
- Possessed to be sold in the normal course of exploitation In the production process for that sale In the form of materials or supplies, to be consumed in the production process or in the provision of services. SCOPE:
This Standard shall apply to all stocks, except:
- Work in progress, coming from construction contracts, including directly related service contracts Financial instruments Biological assets related to agricultural activity and agricultural products at the point of harvest or collection.
Figure 2: NOT APPLICABLE IN BIOLOGICAL ASSETS
This Standard will not apply to the valuation of inventories held by:
- Producers of agricultural and forestry products, provided they are measured by their net realizable value, in accordance with well-established practices in those sectors. In the event that these inventories are measured at net realizable value, changes in this value will be recognized in profit or loss for the year in which such changes occur Intermediaries that trade in quoted raw materials, provided that they value their inventories at fair value less selling costs.
- OBJECTIVE:
This standard aims to:
- Establish the accounting treatment for stocks; includes the valuation, presentation and disclosure of financial information .
Prescribe the accounting treatment of stocks.
- It provides a practical guide for determining that cost, as well as for subsequent recognition as an expense for the year, also including any impairment that reduces the carrying amount to net realizable value.
Figure 3: DETAIL OF NIC2 IN THE USA
- It also provides guidance on the cost formulas that are used to attribute costs to inventory.
- VALUATION OF STOCKS:
5.1 Cost of Inventories
- ACQUISITION COSTS:
Understands:
- Purchase price Import duties and other non-refundable taxes Transportation, handling, storage Trade discounts, and other similar items Other direct costs attributable to the acquisition.
Figure 4: ACQUISITION COSTS
Direct:
- Materials Direct workmanship.
Indirect manufacturing:
- Variables Fixed Semivariables
Selling costs
- Storage costs Cost of agricultural products harvested from biological assets Abnormal amounts of wasted materials, labor, or other production costs.
- COST VALUATION SYSTEM:
Inventories are valued at the lower of cost or net realizable value. These are:
The cost of stocks:
It will include all the costs derived from the acquisition and transformation of the same, as well as other costs that have been incurred to give them their current condition and location. Acquisition costs.
The cost of acquiring stocks:
It will include the purchase price, import duties and other taxes (which are not later recoverable from the tax authorities), transport, storage and other costs directly attributable to the acquisition of the goods, materials or services. Trade discounts, and other similar items will be deducted to determine the acquisition cost.
Figure 5: COST OF ACQUISITION OF STOCK
Transformation costs:
They will include those costs directly related to the units produced, such as direct labor. They will also comprise a part, calculated systematically, of the indirect, variable or fixed costs, which have been incurred to transform raw materials into finished products. Fixed indirect costs are all those that remain relatively constant, regardless of the volume of production.
Figure 6: COSTS PER TRANSFORMATION
The process of allocating the fixed indirect costs to the transformation costs will be based on the normal working capacity of the means of production. Normal capacity is the production that is expected to be achieved under normal circumstances, considering the average of several years or seasons.
The production process can lead to the simultaneous manufacture of more than one product. This is the case, for example, of joint production or the production of main products together with by-products. When the transformation costs of each type of product are not separately identifiable, the total cost will be distributed among the products, using uniform and rational bases.
Other costs: In the calculation of the cost of inventories, other costs will be included, provided that they had been incurred to give them their current condition and location. For example, it might be appropriate to include as the cost of inventories, some indirect costs not derived from production or the costs of designing products for specific customers.
Examples of costs excluded from the cost of inventories, and therefore recognized as expenses for the year in which they are incurred, are the following:
- Abnormal amounts of wasted materials, labor, or other production costs Storage costs, unless these costs are required in the production process, prior to further processing Indirect administration costs that have not been contributed to giving the stock its current condition and location. Costs to sell.
Interest costs:
An entity can acquire inventory with deferred payment. When the agreement actually contains a financing element.
Cost of inventories for a service provider:
In the event that a service provider has stocks, they will be valued at the costs involved in their production. These costs are mainly composed of labor and other costs of the personnel directly involved in the provision of the service, including supervisory personnel and other indirect distributable costs.
Figure 7: DIRECT LABOR
Net realizable value:
It is the estimated sales price minus the estimated costs to finish its production AND those necessary to carry out the sale.
In making estimates of net realizable value, the purpose for which inventories are held will be taken into consideration.
Fluctuations in prices or costs directly related to events after the closing, to the extent that those events confirm conditions
Figure 8: FORMULA VNR existing at the end of the exercise.
Fair value:
It is the amount for which an asset can be exchanged or a liability canceled, between interested and duly informed parties, who carry out a transaction under conditions of mutual independence.
The net realizable value refers to the net amount that the entity expects to obtain from the sale of inventories, in the normal course of operation. The fair value reflects the amount for which this same stock could be exchanged in the market, between interested and duly informed buyers and sellers.
Figure 9: FAIR VALUE
The former is a specific value for the entity, while the latter is not.
Inventories also include property purchased and stored for resale, including, for example, merchandise purchased by a retailer to resell to customers, and also land or other investment property held to be sold to third parties.
Finished products or products in the process of being manufactured by the entity are also inventories, as well as materials and supplies to be used in the production process.
- TRIBURALLY ACCEPTED VALUATION METHODS:
Valuation methods are the set of rules used to correctly value the cost of items sold or to correctly value the inventory of an inventory for physical count purposes.
Both by absorbing costing and by direct costing and whether they are managed by historical or predetermined costs, inventories can be valued by the following methods:
- EPSEPS AVERAGE COSTS
Inventory is valued at the lower cost of its net realizable value. Cost is the expense incurred to bring the product to its current condition and location.
The net realizable value is the sale price less the costs of completion and sale.
IAS 2 establishes two methods (formulas) which are:
- FIFO First-in-first-out (FIFO) = Presents ending inventory at most current cost Weighted average cost = Average cost of inventory over the period) An entity must use the same formula for all inventories of a nature similar or use.
Figure 10: EXAMPLE OF FIFO TABLE
- INVENTORY COSTS:
Classify the following items in the classifications listed below:
Retail method (Method retail)
It is often used in the retail industry for stock measurement for a large number of rapidly changing product lines. These lines have similar margins.
The cost of inventory is determined by reducing the sales value of inventory for the case, usually the average percentage margin, gross.
The percentage applied will take into consideration the inventory that has been marked below its original sale price.
Purchase costs:
They can be import costs, transport, direct costs attributable to the coverage of damages in the transfer minus discounts.
Conversion costs:
Included: Direct labor, direct expenses. Not Included: Research and development, administrative expenses, selling expenses.
Other costs:
Those not included in the previous categories.
- DISCLOSURES:
The top 4 disclosures are:
- The costing formula used in the inventory measurement (FIFO or average cost). Inventory analysis by category:
- The cost of inventory recognized as an expense during the period
- The carrying amount of inventories at fair value less costs to sell
- PRACTICAL CASES:
Exercise No 1 Inventories. Acquisition price.
- We purchase 10,000 units of product X under the following conditions:
Unit price 6 um / unit.
Commercial discount on invoice: 2,000 um
Discount on invoice for order volume: 5%.
Insurance: 500 um
Discount for prompt payment on invoice. 1,100 um
Form of payment in cash.
- Supplier invoice and accounting of the same VAT: 16%.
Solution:
The invoice received will have the following content:
| Price according to invoice | 60,000 | 60,000 | |||||
| - | Commercial discounts | -2,000 | -2,000 | ||||
| 58,000 | 58,000 | ||||||
| - | Order volume discount | -2,900 | -2,900 | ||||
| 55,100 | 55,100 | ||||||
| - | Prompt payment discount | -1,100 | |||||
| 55,100 | 54,000 | ||||||
| | + Insurance | +500 | +500 | ||||
| VAT Tax Base | 55,600 | 54,500 | |||||
| VAT 16% | +8,896 | +8,720 | |||||
| Total bill | 64,496 | 63,220 | |||||
| Subtotal Inventory | 55,600 | ||||||
| - Prompt payment discount | -1,100 | ||||||
| Acquisition Cost | 54,500 | ||||||
- The accounting of the invoice will be done as follows:
Exercise No 2: Inventories. Production cost.
Company X is engaged in the manufacture of the WP product. The costs and units produced during fiscal year 20X7 have been the following:
- Consumption of raw materials: 305,000 Direct labor: 120,000 Indirect manufacturing costs: Fixed costs: 80,000 Variable costs: 25,000 Productive capacity (in units): 20,000 Units produced: 15,000.
Determine unit cost and account for ending inventory of finished product WP.
Solution:
| MP consumption | 305,000 | |
| Direct labor | 120,000 | |
| Indirect manufacturing costs | 85,000 | |
| Fixed costs (15,000 x 4) (1) | 60,000 | |
| Variable costs | 25,000 | |
| PRODUCTION COST FOR THE YEAR | 510,000 | |
| UNITS PRODUCED | 15,000 | |
| UNIT COST | 34.00 |
(1) There are some costs of its activity since the productive capacity is 20,000 units and yet only 15,000 units have been produced, after the total fixed costs a part is attributable to its activity.
| Production capacity (in units) | 20,000 |
| Units produced | 15,000 |
| Total fixed costs | 80,000 |
| Fixed costs per unit | 4 |
| Classification | Accounts | Should | To have |
| Current active | Finished product WP (15,000 ud x 34 um / ud) | 510,000 | |
| Income | Variation in stocks of Finished products | 510,000 |
The costs of its activity of CU20,000 (80,000 - 60,000) are not included in the cost of production, but constitute expenses for the year that are recorded in profit or loss.
| Classification | Accounts | Should | To have |
| Expenses | Expense Accounts (1) | 20,000 | |
| Current active | Banks | 20,000 | |
| (1) Fixed manufacturing overhead costs are comprised of: depreciation, leases, fuels, supplies, etc. |
Exercise 3: Cost of audit services
Lima and Lemon Auditing Society. Associates signed a contract on August 1, year 1 with the transportes correcaminos company to carry out an audit examination of the financial statements for the fiscal year to December 31 of year 1 for an amount of S /. 31,500 plus 18% IGV.
The service will be completed on March 31, year 2 with the delivery of the corresponding opinion.
This amount was obtained from the application of the following estimated hour rates:
| Category | Hours | Cost hour | Sale hour | Sale cost | Sale value |
| Partner | 6 | 261 | 450 | 1,566 | 2,700 |
| Manager | 24 | 174 | 300 | 4,176 | 7,200 |
| In charge | 80 | 87 | 150 | 6,960 | 12,000 |
| Assistant | 160 | 35 | 60 | 5,600 | 9,600 |
| 270 | 18,302 | 31,500 |
| Hourly cost = Annual remuneration + Social laws +% Indirect expenses Auditor N ° of annual billable hours |
At the signing of the contract, transportes correcaminos paid 20% advance. While the field work at the end of year 1 has been incurred 60% as follows:
| December 31 year 1 | |
| Concept | (60%) |
| Salaries | 7,600 |
| Social laws | 680 |
| Third party services (*) | 2,000 |
| Depreciation | 700 |
| 10,980 |
What accounting treatment do we apply?
Solution
Year 1
Advance received (1 August year 1)
| S /. | |
| Contract | 31,500 |
| Advance 20% | 6,300 |
| IGV 18% | 1,134 |
| 7,434 |
| …………………………one……………………………. | SHOULD | TO HAVE |
| 104 Ctas. Ctes. Financial institutions
122 Customer assets 4011 IGV payable |
7,434 |
6,300 1,134 |
Year 1
(August to December)
- Expenses incurred
| …………………………………..two…………………………………… | SHOULD | TO HAVE |
| 621 Remuneration
627 Sec. And Social Prev. 629 Service time compensation 63 THIRD PARTY SERVICE 681 Fixed asset depreciation 391 Accumulated depreciation 4011 IGV payable 403 Contb. Public institutions 411 Remuneration payable 415 CTS 421 Invoices, tickets and other receipts payable |
7,600 560
120 2,000 700 |
700 360 1,460 6,700 120 2,360 |
| 11,340 | 11,340 |
Year 1
- Costs process
| ……………………………….3…………………………. | BABY | TO HAVE | |
| Element 9 costs to distribute
791 Charges attributable to Accounts. Costs and expenses |
10,980 |
10,980 |
|
| ………………………………4……………………………. | |||
| Item 9 cost in process
Item 9 cost to distribute |
10,980 |
10,980 |
Transfer of costs
| ……………………………….5…………………………. | BABY | TO HAVE |
| 235 Stock of services in process
7135 Variation of services in process |
10,980 |
10,980 |
| ……………………………… 6 ……………………………. | ||
| 215 Stock of finished services
235 Stock of services in process |
10,980 |
10,980 |
- Service progress
(Based on the% of the expense incurred as of December 31)
| Concept | S /. | % |
| Proforma expenses | 18,302 | 100 |
| Expenses incurred | 10,980 | 60 |
| Unearned income: 60% of S /. 31,500 = S /.
18,900 |
CONCLUSIONS
- IAS 2 provides us with the tools to establish and prescribe in an accounting way the treatment for an organization's inventories, for a determined period based on its measurement through methods, formulas and information to be disclosed. This standard explains the treatment that is must give inventories, the amount of cost that will be recognized as an asset and the treatment until the corresponding ordinary income is recognized. The standard gives the guidelines to determine this cost, as well as for subsequent recognition as an expense for the year. A fundamental issue in the accounting of inventories is the amount of cost that must be recognized as an asset, so that it is deferred until the corresponding income is recognized. This Standard provides a practical guide for the determination of that cost,as well as for subsequent recognition as an expense for the period, also including any impairment that lowers the carrying amount to net realizable value. It also provides guidance on the cost formulas used to attribute costs to inventories.
RECOMMENDATIONS
Establishing a contingency fund is recommended for the following cases:
- Import: The articles may not arrive in excellent condition when they have been imported, there are risk factors that threaten the safety of the products such as the arrival in less quantity or the fracture of a lens for this reason the tables should be carefully reviewed of registration and coding compared to physical products. Deterioration:It can be caused by mismanagement of inventory such as movement, place, time, space and quantity considerations. The correct quantity must be verified, that the storage areas are adequate; Another important aspect is the planning, control and logistics that encompasses the physical handling, transportation, and location of the materials. That they are provisionally stored for a long time, excessive inventories can accumulate and this leads to a slow movement of products. Proper inventory management can become a competitive advantage with reference to other companies. Technological obsolescence:If we do not rely on innovation and technological development, we will have the same products that currently exist, for example: contact lenses have evolved along with scientific discoveries, in such a way that today there are different types: soft, cosmetic and even bifocals, in order to treat various visual problems. The success of contact lenses, for example, has been attributed in recent years to the manufacture of oxygen-permeable materials that act as extraordinary wetting agents, providing greater tolerance in patients. In addition to being one of the best ways to provide optimal vision to people who suffer from refractive problems. Hence the need to adapt to the permanent change of technologies. For theft or loss:Having security systems that provide protection against theft or loss of high-value materials, it is also important to have an adequate reception and registration of incoming products, as well as vigilance against excessive frequency of employees in storage areas. There should be more training in companies in order to apply IAS 2 Inventories, thus obtaining uniformity in the presentation of information in their financial statements, regardless of the nationality of whoever is reading and interpreting it, since they are international standards where any understood in the branch could interpret them.
BIBLIOGRAPHY
Cruzado Emmanuel (2013), Nic 2 inventories. Retrieved from:
Gerencie.com (2015), Cost system for specific orders. Retrieved from:
International Accounting Standards (2005). International accounting standards (IAS2). Recovered from:
General Accounting Plan (2007), Guide to International Accounting Standards. Recovered from:
www.plangeneralcontable.com/?tit=guia–de–las–normasinternacionales–de–contabilidad.
NICC 2-EXISTENCIAS (2014, October 16). Retrieved on October 16, 2014, from
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