AASB 102 Application: MMS Inventory Measurement and Costing Analysis

This report analyzes the implementation of the AASB Conceptual Framework with a focus on McMillan Shakespeare's (MMS) inventory measurement system. It examines the application of AASB 102 for inventory valuation, highlighting the company's use of the 'lower of cost and net realizable value' method for motor vehicles. The report interprets MMS's costing method, identifying the use of activity-based costing due to the absence of separate overhead categorization for direct material and labor. It further discusses the impact of applying activity-based costing, noting its benefits in identifying cost drivers and improving profitability analysis, while also acknowledging its complexity and potential drawbacks. The report concludes that MMS adheres to AASB 102 for inventory measurement and employs activity-based costing, providing a comprehensive overview of the company's inventory management practices.

Running head: UNDERSTANDING THE IMPLEMENTATION OF AASB CONCEPTUAL
FRAMEWORK
Understanding the implementation of AASB Conceptual Framework
Name of the Student
Name of the University
Author’s Note

1UNDERSTANDING THE IMPLEMENTATION OF AASB CONCEPTUAL
FRAMEWORK
Introduction
The study has primarily focused on the application of inventory measurement system by
Mcmillan Shakespeare (MMS). Some of the main highlights of the discussion have considered
different aspects of inventory and its compliance with the necessary recognition of the
components of inventory. The important aspects of the study have also included the appropriate
costing technique which is relevant for the selected organisation. The last section of the study has
considered the costing system based on the interpretations made from the financial statement of
the company.
Application of AASB 102 for Inventory measurement
The appropriate standard applicable for Australian companies is considered as
“Accounting Standard AASB 102 Inventories”. This standard is relevant for application in
recognising inventories. The accounting system is primarily based on identifying the carrying
value which includes the pertinent application for revenues. Henceforth, this system is also
inferred as a guideline for your evaluation of revenue recognition and cost of the business.
“Accounting Standard AASB 102 Inventories” measures the inventory by writing off the total
net realisable value. The appropriate accounting principle for the entity is seen with assigning
cost with the inventories (Venter 2016). As per the concept of measuring value of the inventory
with such a system, the companies are able to identify the expenses which are to be written down
from the values of inventory recognised at the time of revenue generation. It is also important to
note that such a standard is not applicable for “AASB 132 Financial Instruments” and “AASB 9
Financial Instruments”.

2UNDERSTANDING THE IMPLEMENTATION OF AASB CONCEPTUAL
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Interpretation of inventory measurement system followed by Mcmillan Shakespeare
(MMS)
As per the evaluation of annual report of MMS the company has used “Accounting
Standard AASB 102 Inventories” for measuring the value of inventory. The rationale for
adoption of such a standard can be identified with pertinent disclosures made in the financial
position statement in 2018. As per appendix 1 it can be clearly seen that the inventory of the
motor vehicles is recognised as “lower of cost and net realisable value” (Mmsg.com.au 2019).
It can be stated that such a procedure for recognising the inventory is directly relevant to the
AASB standard for valuing inventory. This inference is followed after termination of rental
contract or leases which are transferred from assets as per operating lease to inventories based on
the carrying amount (Loyeung and Matolcsy 2015). Some of the other comparable findings of
inventory with AASB 102 Inventories can be identified with fixed assets such as plant,
equipment and properties which are no longer under operating leases are categorised as
inventory (Statements 2018). This is directly pertinent with “Accounting Standard AASB 102
Inventories”. The interpretation of such a system for inventory measurement can be referred
with appendix 2. By following such a system for measuring inventory can be noted that the
overall inventory value in 2018 was $ 9,740. The inference of such an information can be
identified by referring to appendix 3.
Costing method applied by Mcmillan Shakespeare (MMS)
The information provided in the consolidated income statement can be identified that the
company has not maintained in a separate overhead for categorising costs such as direct material
and direct labour. Therefore, it can be stated that such a procedure of categorisation of cost is
more pertinent with the adoption of activity-based costing. In addition to this, as per the financial
statement published by the company in 2018, it is evident that the cost components have

3UNDERSTANDING THE IMPLEMENTATION OF AASB CONCEPTUAL
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included self-constructed assets which are a part of total cost structure of the company (IASB
2015). Such a costing method is evident with allocation of assets which are relevant with CGU
and comparison of the same with the appropriate inventory recognition system followed in
Australia. In addition to this, this type of costing system is also included overhead cost in the
EBIT section. This includes the possibility of recovering such a cost in the short run as required.
The depictions of activity-based costing can be further evident with categorising the cost
components as per consulting cost expenses, billing expenses, technology and communication
expenses, property and corporate expenses and finance costs. Moreover, it can be clearly
identified that cost for the business is measured as a fair value of the assets given and liabilities
incurred during the date of exchange (Act 2017).
Impact of applying various methods of costing for MMS
As the company’s depicted to follow activity-based costing, it will be able to include the
relevant cost drivers for consulting cost expenses, billing expenses, technology and
communication expenses, property and corporate expenses and finance costs. Moreover, such a
costing system will be conducive in recognising the relationship between manufacturing cost,
overhead activities and material cost. This type of costing system will also allow the company to
include range of indirect costs such as salaries of office staff and other manufacturing cost of
vehicles. This costing system has allowed the company to rely on target costing based on
appropriate cost of the products, product line and service pricing. This has enabled for a better
profitability analysis and customer profitability analysis. Some of the other features of applying
ABC system will be conducive for the company in finding the relevant cost for designing
products, setting up of machines and operation of the machines (Kaplan and Atkinson 2015).
However, the company needs to be aware of the drawbacks of such a system which can
be identified with complexity of using several resources which is often time consuming.

4UNDERSTANDING THE IMPLEMENTATION OF AASB CONCEPTUAL
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Therefore, it is important for MMS we identify the cost components of individual cost drivers
before applying success costing system (Me and Tax 2016).
Conclusion
On a conclusive note it can be clearly inferred that as per the evaluation of annual report
of MMS the company has used “Accounting Standard AASB 102 Inventories” for measuring
the value of inventory. The rationale for such a system is evident with recognition of inventory
for motor vehicles with “lower of cost and net realisable value”. Some of the other findings on
costing system have shown that company has not maintained in a separate overhead for
categorising costs such as direct material and direct labour which shows that it has followed
activity-based costing.

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References
Act, C.C., 2017. ANNEXURE A.
IASB, F., 2015. Revenue from Contracts with Customers. Exposure Draft.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Loyeung, A. and Matolcsy, Z., 2015. CFO's accounting talent, compensation and
turnover. Accounting & Finance, 55(4), pp.1105-1134.
Me, C. and Tax, A. 2016. Activity-Based-Costing (ABC) | Brief Background, Criticisms,
Problems, Weaknesses, Benefits and Strengths -. [online] Hybrid Accountant. Available at:
https://www.accountantnextdoor.com/activity-based-costing-abc-brief-background-criticisms-
problems-weaknesses-benefits-and-strengths/ [Accessed 6 Feb. 2019].
Mmsg.com.au. 2019. [online] Available at:
https://www.mmsg.com.au/wp-content/uploads/2018/08/2018-Annual-Report.pdf [Accessed 6
Feb. 2019].
Statements, F., 2018. Financial statements: 30 June 2017. Notes, 117(287,832), pp.277-997.
Venter, H., 2016. Digital currency–A case for standard setting activity. A perspective by the
Australian Accounting Standards Board (AASB) http://www. aasb. gov.
au/admin/file/content/c/AASB_ASAF_DigitalCurrency. pdf.

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List of Appendix
Appendix 1
Appendix 2
Appendix 3