(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009Joint products and by-products13.10 A production process may result in more than one product being producedsimultaneously. This is the case, for example, when joint products are producedor when there is a main product and a by-product. When the costs of rawmaterials or conversion of each product are not separately identifiable, an entityshall allocate them between the products on a rational and consistent basis.The allocation may be based, for example, on the relative sales value of eachproduct either at the stage in the production process when the products becomeseparately identifiable, or at the completion of production. Most by-products, bytheir nature, are immaterial. When this is the case, the entity shall measure themat selling price less costs to complete and sell and deduct this amount from thecost of the main product. As a result, the carrying amount of the main product isnot materially different from its cost.Other costs included in inventories13.11 An entity shall include other costs in the cost of inventories only to the extent thatthey are incurred in bringing the inventories to their present location andcondition.13.12 Paragraph 12.19(b) provides that, in some circumstances, the change in the fairvalue of the hedging instrument in a hedge of fixed interest rate risk orcommodity price risk of a commodity held adjusts the carrying amount of thecommodity.Costs excluded from inventories13.13 Examples of costs excluded from the cost of inventories and recognised asexpenses in the period in which they are incurred are:(a)(b)(c)(d)abnormal amounts of wasted materials, labour or other production costs.storage costs, unless those costs are necessary during the productionprocess before a further production stage.administrative overheads that do not contribute to bringing inventories totheir present location and condition.selling costs.Cost of inventories of a service provider13.14 To the extent that service providers have inventories, they measure them at thecosts of their production. These costs consist primarily of the labour and othercosts of personnel directly engaged in providing the service, includingsupervisory personnel, and attributable overheads. Labour and other costsrelating to sales and general administrative personnel are not included but are78 © IASCF