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As per IAS 2, Inventories, The Term Cost of Inventory denotes
1) Raw Material Purchase Price
2) Conversion Cost
3) Cost of bringing the material from the point of origin to the point of storage
4) Borrowing Costs provides the Inventories meet the definition of Qualifying asset.
But the Standard has no definition for the term Cost of Goods Sold. We have to note that the IFRS are the Standards issued for the Fair Presentation of the Financial Statements and focus on Principles rather than hard set rules. Since IAS 2 has been framed to lay down the Principles in valuation of the Inventories, It does not contain the definition for the Cost of Goods Sold. Even IAS 1 which requires a set of Financial Statements as a minimum for Periodical reporting does not define the Term Cost of Goods. IAS 1 does not contain any specific provision related to Computation of Cost of Goods Sold as a part of Statement of Profit or loss for the reporting period.
Hence, the Concept of Cost of Goods sold is outside the IFRS. If we observe in the normal parlance, the term Cost of Goods comprises the following
1) Cost of Raw Material used in the Completed Sale Transactions.
2) Cost of Conversion of the material sold
3) Cost of bringing the material to the existing location (Sold portion)
4) Borrowing Costs if the Asset meets the definition of Qualifying asset.
Hence, I hope your query has been resolved.
COGS
Raw material Consumed (Opg Stock+Purchases-Closing stk) .........
Direct Labour .........
Direct Cost ..........
Add Opening WIP .........
Less Closing WIP ........
COGS ..........
I hope this suffice the question
Since LIFO is not allowed under IFRS, LIFO firms have to convert their inventory into FIFO terms in the footnotes of the financials. This difference is known as the LIFO reserve, and is calculated between the COGS under LIFO and FIFO. The benefit in doing this is an increase in the comparability of LIFO and FIFO firms. However, since everything is moving towards IFRS, FIFO will be the standard moving forward if the U.S. passes the legislation.
This has an effect on the financials of a firm. In particular, during periods of high inflation, a firm that uses LIFO will report higher COGS and lower inventory as compared to a firm that uses FIFO. Higher cost of goods sold results in lower profitability and lower profits results in lower income tax. Lower profits will also result in lower equity for the firm, which affects retained earnings in a negative way. In contrast, in a low inflationary period, the effects mentioned are reversed. Something to keep in mind for analysts converting LIFO firms to FIFO.
Manufacturing companies are companies that make a product. Because these companies have inventory in various stages of production, there are three inventory accounts that we must deal with in order to calculate cost of goods sold. The three inventory accounts are:
Raw materials inventory
Work-in-progress inventory
Finished goods inventory
the cost of sold goods contains all cost related with the productions of the goods
1. Purchase costs
It includes the purchase price and customs duties and other taxes for non-reimbursed expenses and transport, loading and any other expenses related to the acquisition of inventory and you must subtract rebates and commercial rebate.
2. conversion costs
It costs directly related to the units of production, such as:
Direct wages
Industrial fixed indirect costs needed to convert raw materials into goods are ready and carry on normal energy basis.
Industrial Variable indirect costs such as wages and indirect materials and carry on producing units on the basis of the actual use of the means of production.
And it is loaded production costs, fixed indirect conversion costs on regular energy based on the means of production and normal energy is the expected production achieved on average over a number of periods or seasons under normal circumstances, mesmerized into account the energy resulting from planned maintenance and the loss can be used as the actual level production if it is close to the normal energy and does not increase the direct production costs of fixed-laden each and every unit produced as a result of lower production or unemployment and recognized expenses of production indirect is loaded as an expense in the period in which they are incurred in higher production periods Extraordinary lower cost is fixed directly loaded per unit of production units in order to measure the inventory is not more than the cost of production indirect variable costs are charged for each unit of production on the basis of the actual use of the means of production.
3. Other costs
Other costs such as designing products for specific customers costs
Costs should be excluded from the cost of inventories
Here are some examples of the costs that are excluded from the cost of inventories recognized as an expense and the period:
Extraordinary quantities of damaged materials, wages and other production costs.
Storage costs unless they are necessary in the production process to the stage of additional production.
Administrative overheads that Etzhm in bringing the inventory to its current condition.
Selling costs.
Borrowing costs
In specific circumstances allows inclusion of borrowing costs in the cost of inventories, and the specific conditions in the permitted in IAS 23 alternative treatment (borrowing costs)
The cost of inventories in service installations:
The cost of inventories of the service provider primarily consist of labor and other costs for staff working directly in providing the service, including the supervision of staff and overheads that are attributable to it, but do not include the inventory cost of labor and other costs related to the sales staff and the public administration, but recognized as an expense in the period in which incurred.
Cost of of goods sold produced or services provided in a period by an entity. It includes the cost of the direct materials used in producing the goods, direct labor costs used to produce the good, along with any other direct costs associated with the production of goods. In case of services cost of sales includes the labor cost or salaries of the employees and other directly attributable costs.
I can only agree with expert answers. Well done
