Cross-IFRS · Case studies (Step 3 of 5)
Practical case
Pellucia Cookware SAS, a fictitious manufacturer and distributor of enamelled cast-iron casseroles (120 employees), single foundry in Bralenne, IFRS financial statements, year end 31 December, amounts in euros.
L1 · Guided · Year N — production cost
Pellucia casts, enamels and packs casseroles in two ranges, Rubis and Ardoise, which it sells to store chains and to a department store. You follow the company over three years: production cost of the casseroles in N; sales with a right of return and the write-down of a range in N+1; consignment to a department store, a volume rebate and the reversal of a write-down in N+2. Two standards constantly answer each other: IAS 2 sets the value of the casseroles while they are in inventory, IFRS 15 decides when and for how much they become revenue, and the cost of inventories follows the revenue. All figures are case data; teaching assumptions and professional judgements are flagged as such. Teaching assumption: the unit production cost remains 39.10 in N+1 and N+2 (same costs, same volumes); no rate or threshold quoted in the case is imposed by a standard.
Standard involved at this stage: IAS 2 Inventories (costs of purchase, costs of conversion, excluded costs). IFRS 15 will come into play as soon as the casseroles are sold. Read the document, then answer in order.
Fundamental level: the method, help and references are shown.
Method
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Context · Dated fact of the file
Pellucia Cookware SAS, a fictitious manufacturer and distributor of enamelled cast-iron casseroles (120 employees), single foundry in Bralenne, IFRS financial statements, year end 31 December, amounts in euros.
Initial event · L1·Year N — production cost · Current stage
Standard involved at this stage: IAS 2 Inventories (costs of purchase, costs of conversion, excluded costs). IFRS 15 will come into play as soon as the casseroles are sold. Read the document, then answer in order.
Pieces added
New period · L2·Year N+1 — sale of 1 December · Upcoming: unlocks after the current stage
New period · L3·Year N+1 — year end at 31 December · Upcoming: unlocks after the current stage
New period · L4·Year N+2 · Upcoming: unlocks after the current stage
Conclusion · Upcoming: unlocks after the current stage
1 document to work from at this level.
Document 1Supporting document
| Item | Amount | Comment |
|---|---|---|
| Cast iron, enamel and packaging consumed | 728,000 | including transport of the cast iron to the plant |
| Direct labour (founders, enamellers) | 384,000 | |
| Variable production overheads (furnace energy, consumables) | 152,000 | |
| Fixed production overheads (furnace depreciation, plant manager's salary, building maintenance) | 360,000 | |
| Batch destroyed by a furnace breakdown (abnormal waste) | 14,000 | not included in the previous lines |
| Storage of finished goods in an external warehouse, awaiting sale | 22,000 | |
| Head-office administrative costs | 45,000 | |
| Seasonal advertising catalogue | 30,000 |
Production for the year: 40,000 casseroles. Normal capacity of the foundry, taking into account planned maintenance shutdowns: 48,000 casseroles a year. No abnormally high production occurred.
First level: all the data is in the brief and the pieces of this level.
4 parts to answer, marked when you submit the level.
Find the useful facts in the pieces before concluding.
Part 1 · Classification · Recognition
Classify each item in document 1: included in the cost of the casseroles, or recognised as an expense of the year.
Transport of the cast iron to the plant
Direct labour of the founders and enamellers
Furnace depreciation and the plant manager’s salary
Furnace energy
Batch destroyed by the furnace breakdown (14,000)
External storage of finished goods awaiting sale (22,000)
Head-office administrative costs (45,000)
Advertising catalogue (30,000)
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Your working draft for this file: points noted, leads, intermediate calculations.
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Answer every part to submit the level and see the conclusion.
Normative references