IAS 2Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5

WorkpaperIAS 2 — InventoriesL1 · L2 · L3

Cost formulas: cost of issues and closing inventory

6 missions10 sections to document30 min

Prepared by: AI-assisted draft
Reviewed by: Not reviewed — human review required
Status: Published

Objective of the workpaper

Determine the applicable cost formula (specific identification, FIFO or weighted average cost) and its consistency for inventories of a similar nature and use, calculate the cost of issues and of closing inventory, reconcile the cost of sales with the inventory movement and record the entries.

10 sections · 25 blocks · 6 calculations · 2 entries

IAS 2 §23
IAS 2 §24
IAS 2 §25
IAS 2
IAS 2 §27
IAS 2 §34
IAS 2 §35

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

6 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity

Trading company: cost of purchase of an imported lot, FIFO and weighted average cost

Case tasks documented here

Calculate the cost of sales and closing inventories using FIFO and using the weighted average cost.
Which cost formula do you apply and what do you answer the sales director?
Reconcile the cost of sales from opening inventories, purchases and closing inventories.
Record the cost of sales entry for 20X1.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
OPENING_STOCK · 2,000 · 12 | LOT_15_MARCH · 8,000 · 14.5
Quantity issued in the period
Number
7,000 units
Formula applied in the calculation
Choice
First-in, first-out (FIFO)
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
24,000
Receipts of the period per the ledger
Number
116,000
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
96,500
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
43,500
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
3,000 units
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
14
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
140,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
96,500
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Account Debit Credit
Cost of sales 96,500
Inventories 96,500
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Account	Debit	Credit
Cost of sales	96,500
Inventories		96,500

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedNot filled in this instance
The cost of sales derived from the inventory movement agrees with the cost of issuesPass
The cost available is split between issues and closing inventoryPass
The cost of sales entry is balancedPass
The allocation entry is balancedNot evaluated

Assets: -96,500
Liabilities: 0
Profit or loss: -96,500
OCI: 0
Equity: -96,500

File and entity

Trading company: cost of purchase of an imported lot, FIFO and weighted average cost

Case tasks documented here

Calculate the cost of sales and closing inventories using FIFO and using the weighted average cost.
Which cost formula do you apply and what do you answer the sales director?
Reconcile the cost of sales from opening inventories, purchases and closing inventories.
Record the cost of sales entry for 20X1.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
OPENING_STOCK · 2,000 · 12 | LOT_15_MARCH · 8,000 · 14.5
Quantity issued in the period
Number
7,000 units
Formula applied in the calculation
Choice
Weighted average cost
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
24,000
Receipts of the period per the ledger
Number
116,000
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
98,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
42,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
3,000 units
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
14
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
140,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
98,000
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Account Debit Credit
Cost of sales 98,000
Inventories 98,000
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Account	Debit	Credit
Cost of sales	98,000
Inventories		98,000

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Weighted average cost
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedPass
The cost of sales derived from the inventory movement agrees with the cost of issuesPass
The cost available is split between issues and closing inventoryPass
The cost of sales entry is balancedPass
The allocation entry is balancedNot evaluated

Assets: -98,000
Liabilities: 0
Profit or loss: -98,000
OCI: 0
Equity: -98,000

File and entity

Professional file: inventory closing of a manufacturer-distributor of apple products

Case tasks documented here

Which cost formulas apply and how do you respond to the proposals of the finance director?
Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.
Record the entries of the file.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
OPENING_STOCK · 6,000 · 7.5 | RECEIPTS_OF_PERIOD · 24,000 · 8
Quantity issued in the period
Number
21,000 units
Formula applied in the calculation
Choice
First-in, first-out (FIFO)
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
45,000
Receipts of the period per the ledger
Number
192,000
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
165,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
72,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
9,000 units
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
7.9
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
237,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
165,000
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Account Debit Credit
Cost of sales 165,000
Inventories 165,000
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Account	Debit	Credit
Cost of sales	165,000
Inventories		165,000

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
First-in, first-out (FIFO)
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedPass
The cost of sales derived from the inventory movement agrees with the cost of issuesPass
The cost available is split between issues and closing inventoryPass
The cost of sales entry is balancedPass
The allocation entry is balancedNot evaluated

Assets: -165,000
Liabilities: 0
Profit or loss: -165,000
OCI: 0
Equity: -165,000

File and entity

Professional file: inventory closing of a manufacturer-distributor of apple products

Case tasks documented here

Which cost formulas apply and how do you respond to the proposals of the finance director?
Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.
Record the entries of the file.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
OPENING_STOCK · 333,000 · 0.88 | RECEIPTS_OF_PERIOD · 999,000 · 0.8
Quantity issued in the period
Number
1,120,000 units
Formula applied in the calculation
Choice
Weighted average cost
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
293,040
Receipts of the period per the ledger
Number
799,200
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
918,400
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
173,840
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
212,000 units
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
0.82
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
1,092,240
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
918,400
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Account Debit Credit
Cost of sales 918,400
Inventories 918,400
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Account	Debit	Credit
Cost of sales	918,400
Inventories		918,400

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Weighted average cost
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedPass
The cost of sales derived from the inventory movement agrees with the cost of issuesPass
The cost available is split between issues and closing inventoryPass
The cost of sales entry is balancedPass
The allocation entry is balancedNot evaluated

Assets: -918,400
Liabilities: 0
Profit or loss: -918,400
OCI: 0
Equity: -918,400

File and entity

Professional file: inventory closing of a manufacturer-distributor of apple products

Case tasks documented here

Which cost formulas apply and how do you respond to the proposals of the finance director?
Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.
Record the entries of the file.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
RECEIPTS_OF_PERIOD · 444,000 · 1.2
Quantity issued in the period
Number
340,000 units
Formula applied in the calculation
Choice
Weighted average cost
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
0
Receipts of the period per the ledger
Number
532,800
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
408,000
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
124,800
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
104,000 units
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
1.2
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
532,800
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
408,000
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Account Debit Credit
Cost of sales 408,000
Inventories 408,000
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Account	Debit	Credit
Cost of sales	408,000
Inventories		408,000

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Weighted average cost
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedPass
The cost of sales derived from the inventory movement agrees with the cost of issuesPass
The cost available is split between issues and closing inventoryPass
The cost of sales entry is balancedPass
The allocation entry is balancedNot evaluated

Assets: -408,000
Liabilities: 0
Profit or loss: -408,000
OCI: 0
Equity: -408,000

File and entity

Professional file: inventory closing of a manufacturer-distributor of apple products

Case tasks documented here

Which cost formulas apply and how do you respond to the proposals of the finance director?
Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.
Record the entries of the file.

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
Quantity issued in the period
Number
Formula applied in the calculation
Choice
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
Receipts of the period per the ledger
Number
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number
26,000

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
-26,000
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Debit Cost of sales ← Cost of issues under the formula ; Debit Cost of sales (specific identification) ← Cost of the items issued individually identified (specific identification) ; Credit Inventories ← Cost of issues under the formula ; Credit Inventories (specific identification) ← Cost of the items issued individually identified (specific identification)
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Account Debit Credit
Property, plant and equipment 26,000
Inventories 26,000

Account	Debit	Credit
Property, plant and equipment	26,000
Inventories		26,000

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References

Checks and financial statement impact

The cost formula retained is documentedNot filled in this instance
The cost of sales derived from the inventory movement agrees with the cost of issuesNot evaluated
The cost available is split between issues and closing inventoryNot evaluated
The cost of sales entry is balancedNot evaluated
The allocation entry is balancedPass

Assets: 0
Liabilities: 0
Profit or loss: 0
OCI: 0
Equity: 0

Inputs

Items concerned: nature, use, interchangeability, operating segment
TextRequired
Formula applied by the group to inventories of a similar nature and use
Text
Stock card: opening inventory then receipts of the period, in chronological order
Table
Quantity issued in the period
Number
Formula applied in the calculation
Choice
First-in, first-out (FIFO) / Weighted average cost
Cost of the items issued individually identified (specific identification)
Number
Opening inventory per the ledger
Number
Receipts of the period per the ledger
Number
Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)
Number

Supporting evidence

Evidence

Evidence obtained and referenced (category, document reference)
EvidenceRequired

Applicable cost formula

Analysis

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2IAS 2 §27

Conditions examined
ChecklistRequired
- Items not ordinarily interchangeable: specific identification
- Goods or services produced and segregated for specific projects: specific identification
- Large numbers of interchangeable items: specific identification inappropriate (the selection of items remaining could affect profit or loss)
- Other inventories: first-in, first-out or weighted average cost
- Same formula for all inventories having a similar nature and use
- Different use in different operating segments: different formulas may be justified
- A mere difference in geographical location or in tax rules: not sufficient
- Average calculated on a periodic basis or as each receipt arrives, depending on the circumstances of the entity

Recognition as an expense

Analysis

IAS 2 §34IAS 2 §35

Rules for recognition as an expense
ChecklistRequired
- Carrying amount of inventories sold recognised as an expense in the period in which the related revenue is recognised
- Losses of inventories recognised as an expense in the period the loss occurs
- Inventories used as a component of self-constructed property, plant and equipment: expensed over the useful life of that asset

Cost of issues and closing inventory

Calculations

IAS 2 §25IAS 2 §27IAS 2 §34

Cost of issues under the formula
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
The engine applies FIFO by consuming the rows in the order entered, and the weighted average cost over all the rows entered for the period (periodic average). If the entity calculates the average as each receipt arrives (para. 27), document that calculation separately. Only these two formulas are provided for interchangeable inventories (para. 25).
Cost of closing inventory
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Closing quantity
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Weighted average unit cost of the period
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Total cost available (opening + receipts)
Calculation
Stock card: opening inventory then receipts of the period, in chronological order ; Quantity issued in the period ; Formula applied in the calculation
Cost of sales derived from the inventory movement (opening + receipts − closing − allocation to property, plant and equipment)
Calculation
Opening inventory per the ledger ; Receipts of the period per the ledger ; − Cost of closing inventory ; − Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Journal entries

Entries

Issue of inventory and cost of sales
EntryRequired
Debit Cost of sales ← Cost of issues under the formula ; Debit Cost of sales (specific identification) ← Cost of the items issued individually identified (specific identification) ; Credit Inventories ← Cost of issues under the formula ; Credit Inventories (specific identification) ← Cost of the items issued individually identified (specific identification)
Teaching assumption: all the issues entered are sales of the period; inventories allocated to an item of property, plant and equipment are dealt with in the next entry.
Allocation of inventories to property, plant and equipment
EntryRequired
Debit Property, plant and equipment ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold) ; Credit Inventories ← Inventories allocated to property, plant and equipment self-constructed by the entity (outside issues sold)

Choice of formula

Judgment

IAS 2 §23IAS 2 §24IAS 2 §25IAS 2

Cost formula retained for these inventories
JudgmentRequired
Specific identification / First-in, first-out (FIFO) / Weighted average cost
With specific identification, enter the cost of the items issued in the field provided and leave the engine stock card empty; with FIFO or weighted average cost, use the stock card. Never use both bases for the same issues.
Rationale: facts relied on, analysis, alternative rejected
TextRequired

Conclusion

Cost of sales and closing inventory under the formula retained, entries for issues
ConclusionRequired

Financial statement impact

FS impact

Impact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired

Normative references

References

Paragraphs cited in this workpaper (verification status shown from the register)
References