Business Accounting-Specific Measurement of Inventory

Running head: BUSINESS ACCOUNTING
Business Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1
BUSINESS ACCOUNTING
1. Explaining and evaluating the measurement of inventory in accordance with the relevant
accounting standard:
Specific measurement of inventory is mainly mentioned in paragraph 9 of AASB 102,
which directly states that the inventory value needs to be lower than the cost of net realizable
value. Moreover, the AASB 102 paragraph 10 highlights the relevant calculations, which can be
used for calculating the cost of inventories and determine the exact value of inventories
maintained by the company after adjusting the cost of purchase, cost of conversion, and other
transportation cost. The standard provides information regarding the cost that needs to be
included by the company while detecting the accurate level of cost incurred for holding the
inventory in their books. Steenkamp and Steenkamp (2016) mentioned that AASB 102 provides
in-depth information regarding the cost, measure and formulas that can be used by the company
in depicting the accurate level of information in their annual report.
There are specifically two techniques that are mentioned in AASB 102, which can be
used by the organization for improving their current operational capability (Aasb.gov.au 2019).
The standard cost method and retail method is mentioned in the AASB standard, which can be
used by the organization in accordance with their requirements. The standard costing method
takes in account all the relevant levels of materials and supplies, labour, efficiency and capacity
utilisation. In addition, the retail method is used by retail industry, which has large number of
inventory change and uses average percentage while calculating the inventory.
2. Identifying the inventory system applied by the company and discussing about the
advantages to the company:

2
BUSINESS ACCOUNTING
Figure 1: Inventory Valuation of Evolution Mining Limited
(Source: Evolutionmining.com.au 2019)
The above figure provides information regarding the recognition and measurement
method that has been used by Evolution Mining Limited in their 2018 annual report. In addition,
the company mainly uses the standard cost method for measuring their inventories in the annual
report. This has mainly allowed the organization to determine the required level of inventory
cost, which will be portrayed in their annual report. As mentioned in the above figure, the
inventory value calculation is dependent on the weighted average costs, which includes an
appropriate portion of fixed and variable production overhead expenditure that converts the
materials into finished goods. Moreover, the materials and supplies that are valued by Evolution
Mining Limited are mainly lower of cost and new releasable values, which are mentioned in
paragraph 9 of AASB 102 (Aasb.gov.au 2019).