IAS 2Chapter 4Lesson 3
Other costs, excluded costs, borrowing costs and deferred settlement
Step 1 of 8Learning objectives
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A single criterion decides what enters the cost of inventories: was the cost incurred to bring the inventories to their present location and condition? Some non-production costs may therefore be included (design for a specific customer), while abnormal waste, storage not necessary to the process, unrelated administrative overheads and selling costs are excluded. Borrowing costs are governed by IAS 23; the extra paid for deferred settlement, when it is in substance a financing element, is an interest expense.
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Learning objectives
- Apply the 'location and condition' criterion to decide whether a cost other than purchase or conversion enters the cost of inventories.
- Identify the excluded costs given as examples by the standard and recognise them as expenses of the period.
- Explain the referral to IAS 23 for borrowing costs included in limited circumstances.
- Calculate the cost of a purchase with deferred settlement and the related interest expense, then record the entries.