PPSAS 12-Inventories Oct- 18 2013

Philippine Public Sector Accounting Standard 12 INVENTORIES

Table of Contents PAG Number BACKGROUND INTRODUCTION TO THE IPSAS 12 PHILIPPINE APPLICATION GUIDANCE TO IPSAS 12 Scope

1

Cost Formulas

2

Effective Date

3

PPSAS 12- Inventories January 2014 Page 1

Philippine Public Sector Accounting Standards 12 INVENTORIES Background This Philippine Public Sector Accounting Standard (PPSAS) 12 consists of International Public Sector Accounting Standard (IPSAS) 12, “Inventories”, and the Philippine Application Guidance (PAG) prepared to suit the Philippine public sector situation. The IPSAS 12 was issued in July 2001 and revised in December 2006 by the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC). This includes amendments resulting from IPSASs issued up to January 15, 2012. The PAG (in italics) provides supplementary guidance on the proper implementation of IPSAS 12. Introduction to the IPSAS 12 IPSAS 12 sets out the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any writedown to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. Philippine Application Guidance to IPSAS 12 Scope PAG1.Paragraph 4 deals with the applicability of this Standard to all public sector entities other than Government Business Enterprises (GBEs). GBE is an entity that has all the following characteristics: (a) Is an entity with the power to contract in its own name; (b) Has been assigned the financial and operational authority to carry on a business; (c) Sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery; (d) Is not reliant on continuing government funding to be a going concern (other than purchases of outputs at arm’s length); and (e) Is controlled by a public sector entity. This standard shall be applied to all National Government Agencies (NGAs), Local Government Units (LGUs) and Government-Owned and/or Controlled Corporations (GOCCs) not considered as GBEs. PPSAS 12- Inventories January 2014 Page 2

Cost Formulas PAG2.Paragraph 32 provides that the cost of inventories of items that are not ordinarily interchangeable, and goods and services produced and segregated for specific project, shall be assigned by using specific identification of their individual costs. Paragraph 35, on the other hand, deals with the assignment of cost of inventories using the First-in-first-out (FIFO) or weighted average cost formulas items that are not specifically identifiable. For consistency and uniformity in costing inventories, the weighted average shall be adopted for items that are not specifically identifiable. Effective Date PAG3.This PPSAS shall apply for annual financial statements covering periods beginning January 1, 2014.

PPSAS 12- Inventories January 2014 Page 3