SMEs - Inventories

and Revenue
Chapter 27

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 Inventories

• assets held for sale in the orfinary course of

business

• measured at the lower of cost and estimated

selling price less cost to complete and dispose

• Cost - all costs of purchases, cost of conversion

and other costs

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 Cost of purchase
• purchase price, import duties and other
irrevocable taxes, transport, handling and other
costs

• Deductions – trade discounts, revates and other

similar items

• Deferred settlement terms - recognition of

interest expense

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 Cost of conversion

• cost directly related to the units of production

• systematic allocation of fixed and variable

prodiction overheads

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 Other costs
Costs that are expensed when incurred:
(ASAD)

• Abnormal amount of wasted materials, labor or

other production costs

• Storage costs

• Administrative overheads (no contribution

• Distribution or selling costs

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 Cost formulas
• FIFO or weighted average

Accepted techniques if the results approximate cost:

• Standard cost

• Retail method

• Most recent purchase price

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Impairment of inventories

• carrying amount is not fully recoverable (O.D.D)

• measured at selling price less cost to complete

and dispose

• Impairment loss—excess of the carrying amount

over the selling price less cost to complete and
dispose

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 Recognition of inventories as
expense

• carrying amount : compoment of Cost of goods sold

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 Disclosures
• Accounting policies adopted including the cost formula
used

• Total carrying amount of inventories and the carrying

amount in classification appropriate to the entity

• Amount of inventories recognized as an expense

• Impairment losses recognized and reversed in P/L

• Total carrying amount of inventories pledged as

security for liabilities
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 Revenue

• fair value of the consideration received or

receivable

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 Revenue from sale of goods Revenue from rendering of services

transfer of significant risks and probable that economic benefits will

rewards of ownership flow to the entity

retains neither continuing managerial amount of revenue can be measured

involvement nor effective control reliably

amount of revenue can be measured cost incurred for the transaction and to
reliably complete it can be measured reliably

probable that economic benefits will

flow to the entity stage of completion of the transaction
at the end of reporting period can be
cost incurred or to be incurred can br measured reliably
measured reliably

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 Revenue recognition from
interest, royalties and dividends

• It is probable that the economic benefits

associated with the transaction will flow to the
entity

• amount of revenue can be measured reliably

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• Interest - effective interest method

• Royalties - on accrual basis

• Dividends - when the shareholder’s right to

receive the payment is established

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Disclosures about revenue

• Accounting policies adopted for the recognition of

revenue, including the method for determining
stage of completion

• Amount of each category of revenue showing

separately revenue arising from different types of
revenue

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 PFFS for SME compared to
FULL PFRS

• Same principles – sale of goods, interest,

royalties and dividends

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