IFRS for SMEs Inventory and Cost Flashcards

Under IFRS for SMEs, which method is used to allocate fixed production overhead to inventory?

Answer: Based on normal capacity of production facilities

Fixed production overheads are allocated based on normal capacity, not actual production, to avoid distorting unit costs in low-output periods.

An SME entity holds raw materials, work-in-progress, and finished goods. Under IFRS for SMEs, the lower of cost and NRV test applies to:

Answer: Each category or line item of inventory

IFRS for SMEs requires the lower of cost and NRV assessment to be applied on an item-by-item basis or for similar categories.

Under IFRS for SMEs, borrowing costs on funds used to finance inventory held for sale should be:

Answer: Recognized as an expense when incurred

IFRS for SMEs requires all borrowing costs to be recognized as an expense; capitalization of borrowing costs is not permitted.

When an SME uses a standard cost method for measuring inventory, what condition must be met for it to be acceptable?

Answer: The standard costs must approximate actual cost

Under IFRS for SMEs, standard costs are an acceptable inventory cost technique provided they approximate actual cost.

Under IFRS for SMEs, service providers that hold inventories should measure those inventories at:

Answer: Costs of production, primarily labor and other costs of personnel directly engaged in providing the service

For service providers, inventory costs consist mainly of the labor and other costs of personnel directly engaged in providing the service, including attributable overheads.

Under IFRS for SMEs, which of the following would be a period cost rather than a product cost for inventory purposes?

Answer: Selling costs

Selling costs are excluded from inventory cost and recognized as period expenses under IFRS for SMEs Section 13.