IAS 2

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yvreddy
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IAS 2

Post by yvreddy »

Hi Team,

A manufacturing compnay is having 4 lines for production, due to low demand of products the compnay had stopped running line 1 and rest 3 lines are running for production. Now, how to treat the cost incurred for maintenance & depreciation pertains to line 1 (Idle Cost) either Direct cost (Part of cost of goods sold or General and admin expense) as per IAS 2.

Please advice. Thanks in adavcne.
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JRSB
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Re: IAS 2

Post by JRSB »

If those assets aren't contributing to products being sold then not Cost of sales I'd suggest.

Are there wider issues like impairment of machinery (if bespoke?) or inventory (if no longer selling?) or discontinued operations (if major lines?) etc?
"I am always ready to learn although I do not always like being taught" - Churchill
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Marek Muc
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Re: IAS 2

Post by Marek Muc »

yvreddy wrote: 22 Oct 2020, 06:59 as per IAS 2.
IFRS are pretty much silent on the distinction between direct costs (or COGS) and indirect costs
pub_acco
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Re: IAS 2

Post by pub_acco »

I would usually include the abnormal production costs in COGS based on IAS 2.38, though I am not fully sure if this is applicable to you.
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Marek Muc
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Re: IAS 2

Post by Marek Muc »

You're right pub_acco! I must admit that I wasn't aware that IAS 2 even mentions cost of sales
pub_acco
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Re: IAS 2

Post by pub_acco »

That’s an exceptional provision indeed ;)
Lasa1
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Re: IAS 2

Post by Lasa1 »

Reading IAS2.38 I understand that unallocated production overheads should be included in COGS.
However, I am struggling with IAS2.13:
“The amount of fixed overheads allocated to each unit of production is not increased as consequence of low production or idle plant. Unallocated overheads are recognized as an expense in the period in which they are incurred.”
Based on the above, I understand the cost of production line 1 should not be included in inventory cost. If they are not included in inventory, they are not included in COGS, right? Or can COGS include costs that are not included in inventory?
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JRSB
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Re: IAS 2

Post by JRSB »

Cost of sales is not just costs going 'via' inventory.

Business who provide services may have no inventory in their trade, but COS might have costs associated with generating the revenue, etc.
"I am always ready to learn although I do not always like being taught" - Churchill
Lasa1
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Re: IAS 2

Post by Lasa1 »

Thanks for clarification!
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