Cost of Inventory includes:The costs of purchase of inventories include:
1. Cost of purchase
2. Cost of conversion
3. Other cost to bring the inventory to the present location and condition
Cost of Purchase:
a) the purchase price,
b) import duties and other taxes (other than those subsequently recoverable by the entity
from the taxing authorities),
c) transport, handling and
d) other costs directly attributable to the acquisition of finished goods, materials and
services.
Any trade discounts, rebates and other similar items are deducted in determining the costs of purchase of inventory.
Cost of conversion:
a) Direct material
b) Direct labour
c) Other direct costs
d) Overheads (Fixed and variable production overheads)
Other cost exclude:
a) Abnormal cost
b) storage costs, unless those costs are necessary in the production process before a
further production stage;
c) administrative overheads that do not contribute to bringing inventories to their
present location and condition; and
d) selling costs.
Borrowing cost will be added to the cost of Inventory if the Inventory is a qualifying asset. However borrowing costs cannot be capitalized in case of inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis even if they take a substantial period to get ready for sale.
