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.
IAS 2
Re: IAS 2
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?
Are there wider issues like impairment of machinery (if bespoke?) or inventory (if no longer selling?) or discontinued operations (if major lines?) etc?
Re: IAS 2
You're right pub_acco! I must admit that I wasn't aware that IAS 2 even mentions cost of sales
Re: IAS 2
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?
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?