IAS2: describe the accounting treatment for inventories

A primary issue in accounting for inventories is the

amount of cost to be recognized as an asset and carried
forward until the related revenues are recognized

Its provides guidance on the cost formulas that are used

to assign costs to inventories.

Inventories shall be measured at the lower of cost and

net realizable value (NRV)

Cost of inventory shall comprise all:

• cost of purchase
• Cost of conversion
• Cost incurred in bringing the inventories to
their present location and condition.

Net realizable value NRV: is the estimated selling price

in the ordinary course of business less the costs of
completion and the estimated costs necessary to make
the sale.

Methods The cost of inventories shall be assigned by

using the (FIFO or AVCO)

An entity shall use the same cost formula for all

inventories having a similar nature and use to the
entity. For inventories' with a different nature or use
different cost formulas maybe are justified.
When inventories are sold the carrying amount of those
inventories shall be recognized as an expense in the
period in which the related revenue is recognized.
The amount of any write down of inventories to net
realizable value and all losses of inventories shall be
recognized as an expense in the period the write down
or loss occurs. The amount of any reversal of any write
down of inventories arising form an increase in net
realizable value shall be recognized as a reduction in
the amount of inventories recognized as an expense in
the period in which the reversal occurs.

IAS7: require the provision of information about the

historical changes in cash and cash equivalents.

Classifies cash flow during the period from operating,

investing and financing activates.

Cash flow is inflows and outflow of cash and cash

equivalents.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short term highly liquid

investment.

Purpose of cash flow

Cash flow provides users of financial statements with a

basis to assess the ability of entity to generate cash and
cash equivalents and the needs of the entity to utilize
those cash flows.

Debaters : they have to pay for us

Creditors : we have to pay for them

Operating activates:

Direct method: whereby major classes of gross cash

receipts and gross cash payments are disclosed.

The indirect method: whereby profit or loss is

Adjusted for the effects of transaction of a non-cash
nature any deferrals or accruals of past or future
operating cash receipts or payments and items of
income or expense associated with investing or
financing cash flow.

The separate disclosure of cash flows arising from

investing activities is important?

Because the cash flows represent the extent to which

expenditure have been made for resources
Intended to generate future income and cash flow.

Financing activities are activities that result in the size

and composition of the contributed equity and
borrowings of the entity?

The separate disclosure of cash flows arising from

financing activates is important because it is useful in
predicting claims on future cash flows by providers of
capital to the entity

IAS 16 property plant and equipment

The objective to prescribe the accounting treatment for

property plant and equipment so that users of the
financial statements can discern information about an
entity investment in its property plant and equipment
and the changes in such investment

Property plant and equipment are tangible items that:

1-are held for use in the production or supply of goods

or service for rental to others or for administrative
purpose.

2-are expected to be used during more than one period

The cost of an item of property plant and equipment

shall be recognized as an asset if and only if:

1-It is probable that future economic benefits

associated with the item will flow to the entity.

2- The cost of the item can be measured reliably

Measurement at recognition: an item of property plant
and equipment that qualifies for recognition as an asset
shall be measured at its cost. The cost of an item of
property plant and equipment is the cash price
equivalent at the recognition date.

The cost of an item of property plant and equipment

comprises:

1-Its purchase price.

2- Any costs directly attributable to bringing the asset

to the location and condition.

3- The initial estimate of the costs of dismantling and

removing the item and restoring the site.

Measurement after recognition: an entity shall choose

either the cost model or the revaluation model as its
accounting policy and shall apply that policy to an
entire class of property plant and equipment.

Measurement after recognition:

1-Cost model: after recognition as an asset an item of
property plant and equipment shall be carried at its
cost less any accumulated depreciation and any
accumulated impairment losses.

2- Revaluation model: after recognition as an asset an

item of property plant and equipment whose fair value
can be measured reliably shall be carried at a revalued
amount being its fair value at the date of the
revaluation less any subsequent accumulated
depreciation and subsequent accumulated impairment
losses.

Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset or other
amount substituted for cost less its residual value.

The residual value of an asset is the estimated amount

that an entity would currently obtain from disposal of
the asset after deducting the estimated costs of disposal
of the assets were already of the age and in the
condition expected at the end of its useful life.

The carrying amount of an item of property plant and

equipment shall be derecognized:
1- On disposal.
2- When no future economic benefits are
expected from its use or disposal.

Types of income:
1-real income: increase in economic wealth.
2-money income: increase in the monetary valuation of
resources
3- Psychic income: satisfaction of human want.

What's the objective of majoring money?

To determine how much better of an entity has be come
during some period of time.

What's the purpose of income calculation of JRAX?

To give people on indication on the amount of money
which they can consume without making them self
poor.

Capital maintenance: Financial capital maintenance:

occurs when amount of enterprise net assets at the end
of the period exceeds the financial amount of net assets
at the beginning of the period excluding transactions
with owners.

Physical capital maintenance: implies that a return on

capital income occurs when the physical productive
capacity of the enterprise at the end of the period
exceeds its physical productive capacity at the
beginning of the period excluding transactions with
owners.

Revenue: is the inflow or enchantment of assets or

settlement of liability or both

1- Realization: process of converting non cash

assets to cash or cash to claim.

2-recogntion: the formal process of reporting

transaction in the financial statement

What's capital maintenances concept ?

The occurrence of income means a return on invested
capital a return on capital occurrence only after the
amount invested has been maintained or covered

GAAP have 2 conditions to recognize revenue:

Revenue has been earned (mission accomplished)
Revenue has been realized (when goods delivered)

Accounting concept:

1-consistency: when we use FIFO for stocks we

continue with same method.

2- Historical cost: stock should be record at the lowest

cost or NRV

On March we bought 1 stock for 40000

20% cost 8000
-------
We record as 40000 because its historical cost. 48000

3-business entity: someone buy grocery from business

money the business and owners are separate legal
entity limited private.

4-prudence: to be prudent in accounting is to be

cautious. This means that we should be cautious when
valuing assets or when measuring profits.

Debtors 100000 ( alone X )

Expense : bad debt = 1000 -1000 ( n6r7ha T )
 -----------------
Any loss immediately 99000

5-accural and matching: revenue and expense recorded

at same period.

6-materiality: 1- item is material: show as an asset.

2- Item is not material: write off to profit and loss as
expense

7-going concern: business will continue trading into the

future.
It is allowable to value stock at less that its original
cost if the new realizable value is expected to be lower
that the historical cost. Also fixed assets especially
land and propriety can be revalued upwards if the
historical cost is significantly out of step with current
market valuations any revaluation should only be
undertaken on an infrequent basis.

8-realisation: this concept links with prudence but is

specifically focused on deciding when profit has been
generated.
The realization concept states that a sale should only be
recognized when we can be reasonably certain that we
will receive money connected with the sale.
COMPREHENSIVE INCOME AS THE CHANGES IN EQUITY (NET
SALES) OF AN ENTITY DURING PERIOD FROM TRANSACTION OF
EVENTS FROM NON OWNER SOURCES IT INCLUDES ALL
CHANGES IN EQUITY DURING A PERIOD EXCEPT THOSE
RESULTING FROM INVESTMENT BY OWNERS AND DISTRIBUTIONS
TO OWNERS.

Cost: The amount given consideration of goods

received or to be received.

Costs can be classified as:

1- Unexpired assets which are applicable to the
production of future revenue.

2- Expired those not applicable to the production of

future revenues and thus deducted from revenues or
retained earnings in the current period.