Inventory
Posted: 18 Jul 2022, 20:28
Is it right to expense closing inventory at year end? What does IAS 2 say about this?
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Re: Inventory
Posted: 19 Jul 2022, 10:21
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).
Re: Inventory
Posted: 19 Jul 2022, 11:20
The firm expenses the whole balance of closing inventory as year end, as a result there is no inventory on the balance sheet.
Re: Inventory
Posted: 19 Jul 2022, 14:39
Without having sold it?
Re: Inventory
Posted: 19 Jul 2022, 14:40
Is that because it is impaired, eg it's expired or not saleable if not sold by year end?
Otherwise is just wrong!
Otherwise is just wrong!
Re: Inventory
Posted: 19 Jul 2022, 14:49
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
Dr. Inventory
Cr Expense acc
Re: Inventory
Posted: 19 Jul 2022, 15:00
ok but if the company does control inventory at the balance sheet date, which has realisable value, it should be in balance sheet.
Re: Inventory
Posted: 19 Jul 2022, 15:37
That's my understanding too. They should have a current asset not expense closing inventory that still has value.
Re: Inventory
Posted: 19 Jul 2022, 15:39
Their argument is that, they are a service providing entity and they don't sell that inventory for profit.
Re: Inventory
Posted: 19 Jul 2022, 16:50
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.
Re: Inventory
Posted: 19 Jul 2022, 16:54
what kind of inventory is it and for what purposes it is used?
Re: Inventory
Posted: 19 Jul 2022, 17:06
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!
Re: Inventory
Posted: 19 Jul 2022, 17:12
or some supplies used for marketing purposes...
Re: Inventory
Posted: 20 Jul 2022, 08:27
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.
Re: Inventory
Posted: 20 Jul 2022, 09:47
did they explain to you why they think it's not inventory at the year end?
Re: Inventory
Posted: 20 Jul 2022, 10:12
Re: Inventory
Posted: 20 Jul 2022, 10:13
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.
Re: Inventory
Posted: 20 Jul 2022, 11:30
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!
Re: Inventory
Posted: 20 Jul 2022, 13:57
Not fuel in their cars, I'm referring to the fuel they store on their different sites.
Re: Inventory
Posted: 20 Jul 2022, 14:14
well if it's still able to run a car then it's inventory like Marek saysRe: Inventory
Posted: 20 Jul 2022, 15:12
Thank you. They just don't want to admit that what they are doing is wrong.
Re: Inventory
Posted: 20 Jul 2022, 16:27
I guess your company isn't audited. Perhaps you can suggest that.
Re: Inventory
Posted: 21 Jul 2022, 09:29
I'm actually auditing a certain firm, so that is what I discovered regarding inventory.