Inventory

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Shezzy
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Inventory

Post by Shezzy »

Is it right to expense closing inventory at year end? What does IAS 2 say about this?
JRSB
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Re: Inventory

Post by JRSB »

Can you expand what you mean a bit more? Normally the phrase 'expense inventory' means put it through cost of sales when it is sold. If you still have it, it's still in inventory (and therefore not expensed).
Shezzy
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Re: Inventory

Post by Shezzy »

The firm expenses the whole balance of closing inventory as year end, as a result there is no inventory on the balance sheet.
JRSB
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Re: Inventory

Post by JRSB »

Without having sold it?
JRSB
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Re: Inventory

Post by JRSB »

Is that because it is impaired, eg it's expired or not saleable if not sold by year end?

Otherwise is just wrong!
Shezzy
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Re: Inventory

Post by Shezzy »

Yes it is not sold. They expense it at year end and then create a reversal journal at the beginning of the new year. That is, they reverse the credit they did at year end

Dr. Inventory
Cr Expense acc
JRSB
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Re: Inventory

Post by JRSB »

ok but if the company does control inventory at the balance sheet date, which has realisable value, it should be in balance sheet.
Shezzy
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Re: Inventory

Post by Shezzy »

That's my understanding too. They should have a current asset not expense closing inventory that still has value.
Shezzy
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Re: Inventory

Post by Shezzy »

Their argument is that, they are a service providing entity and they don't sell that inventory for profit.
sowmiyanagarajan
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Re: Inventory

Post by sowmiyanagarajan »

irrespective of the core business being service and not dealing with inventories as primary business it should be part of current assets unless its consumed /sold or impaired.
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Marek Muc
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Re: Inventory

Post by Marek Muc »

what kind of inventory is it and for what purposes it is used?
JRSB
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Re: Inventory

Post by JRSB »

ok it's starting to sound like professional time / 'work in progress' which is written off because it's not billable or something, yes please answer Marek's point!
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Marek Muc
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Re: Inventory

Post by Marek Muc »

or some supplies used for marketing purposes...
Shezzy
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Re: Inventory

Post by Shezzy »

They buy and store fuel that is used on their company cars, dip readings (stock count) is done at year end. They also have plant spares which they also consider as inventory during the year.
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Re: Inventory

Post by JRSB »

did they explain to you why they think it's not inventory at the year end?
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Marek Muc
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Re: Inventory

Post by Marek Muc »

I guess this was it:
Shezzy wrote: 19 Jul 2022, 15:39 Their argument is that, they are a service providing entity and they don't sell that inventory for profit.
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Marek Muc
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Re: Inventory

Post by Marek Muc »

So this approach is not compliant with IFRS, as IAS 2.9 mandates that inventories shall be measured at the lower of cost and net realisable value.
JRSB
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Re: Inventory

Post by JRSB »

To be fair I've never seen a company record in inventory the fuel that was in the company cars at year end! I assume they have a lot of company cars!
Shezzy
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Re: Inventory

Post by Shezzy »

Not fuel in their cars, I'm referring to the fuel they store on their different sites.
JRSB
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Re: Inventory

Post by JRSB »

:lol: well if it's still able to run a car then it's inventory like Marek says
Shezzy
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Re: Inventory

Post by Shezzy »

Thank you. They just don't want to admit that what they are doing is wrong.
JRSB
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Re: Inventory

Post by JRSB »

I guess your company isn't audited. Perhaps you can suggest that.
Shezzy
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Re: Inventory

Post by Shezzy »

I'm actually auditing a certain firm, so that is what I discovered regarding inventory.
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