Question

Comport Pty Ltd is a wholesaler of home furniture. The recent bushfire destroyed one of its warehouse located in Sydney. The inventory loss amounts to $180,000.

Required: Discuss and justify how Comfort Pty Ltd should account for the inventory loss of $180,000 as am 'expense', in accordance with the definition and recognition criteria provided in the AASB conceptual framework

Answer 1

The Australian Accounting Standards Board made Accounting Standard AASB 102 Inventories under section 334 of the Corporations Act 2001 on 24 July 2015.

The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs to be incurred to make the sale have increased. The practice of writing inventories down below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognised as an expense in the period the write-down or loss occurs. so that we can recognise loss of $180,000 as an expense in the financial statements.