IAS 2 INVENTORIES: JOINT PRODUCTS

7. JOINT PRODUCTS

Where two, or more, main products are produced, but the costs of conversion cannot be separately identifiable, these costs are allocated on a rational and consistent basis.

You may use the relative sales value of each product, either when they are complete, or when they are separately identifiable in the production process.

Example: allocating costs, based on product sales value You are processing oil. Processing costs for the period are $300.000 The processing provides equal quantities of 2 by-products. Product 1 sells for $25 per kilo. Product 2 sells for $50 per kilo. Product 1 should bear 1/3 of the activity’s costs. Product 2 should bear 2/3 of the activity’s costs.
	I/B	DR	CR
Processing costs	I		300.000
Inventory-product 1	B	100.000
Inventory-product 2	B	200.000
Allocating processing costs to products, based on sales value.