At the moment, oil refinery produces 3 oil products: diesel, light fraction and one by-product (let’s name it “B”)
According to accounting record the first two are profitable, while the third “B” is generating losses.
The production of B cannot be evaded, because it is a by-product of the normal production cycle. If, at the split-off, the company decides to avoid further processing of B, it will decrease total profit of the company, because the cost of further processing are insignificant, and the revenue from B is 5-6 times greater than those distribution costs. In other words, B is actually profitable.
According to IAS 2, whole processing costs should be allocated on the basis of NRV of all products. In this case, a significant portion of whole production is allocated to B and it is no more profitable.
I think that such accounting does misrepresent the performance of the company. Is there any other option to allocate costs?
