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

IFRS FOR SMES – JULY 2009recognised as expenses in the period in which they are incurred. The cost ofinventories of a service provider does not include profit margins ornon-attributable overheads that are often factored into prices charged by serviceproviders.Cost of agricultural produce harvested from biological assets13.15 Section 34 requires that inventories comprising agricultural produce that anentity has harvested from its biological assets should be measured on initialrecognition at their fair value less estimated costs to sell at the point of harvest.This becomes the cost of the inventories at that date for application of thissection.Techniques for measuring cost, such as standard costing, retailmethod and most recent purchase price13.16 An entity may use techniques such as the standard cost method, the retail methodor most recent purchase price for measuring the cost of inventories if the resultapproximates cost. Standard costs take into account normal levels of materialsand supplies, labour, efficiency and capacity utilisation. They are regularlyreviewed and, if necessary, revised in the light of current conditions. The retailmethod measures cost by reducing the sales value of the inventory by theappropriate percentage gross margin.Cost formulas13.17 An entity shall measure the cost of inventories of items that are not ordinarilyinterchangeable and goods or services produced and segregated for specificprojects by using specific identification of their individual costs.13.18 An entity shall measure the cost of inventories, other than those dealt with inparagraph 13.17, by using the first-in, first-out (FIFO) or weighted average costformula. An entity shall use the same cost formula for all inventories having asimilar nature and use to the entity. For inventories with a different nature oruse, different cost formulas may be justified. The last-in, first-out method (LIFO)is not permitted by this IFRS.Impairment of inventories13.19 Paragraphs 27.2–27.4 require an entity to assess at the end of each reportingperiod whether any inventories are impaired, ie the carrying amount is not fullyrecoverable (eg because of damage, obsolescence or declining selling prices). If anitem (or group of items) of inventory is impaired, those paragraphs require theentity to measure the inventory at its selling price less costs to complete and sell,and to recognise an impairment loss. Those paragraphs also require a reversal ofa prior impairment in some circumstances.© IASCF 79