(a) Fill is a coal mining company and sells its coal on the spot and futures markets. On the spot market, the commodity is traded for immediate delivery and, on the forward market, the commodity is traded for future delivery. The inventory is divided into different grades of coal. One of the categories included in inventories at 30 November 20X6 is coal with a low carbon content which is of a low quality. Fill will not process this low quality coal until all of the other coal has been extracted from the mine, which is likely to be in three years’ time. Based on market information, Fill has calculated that the three-year forecast price of coal will be 20% lower than the current spot price.

The directors of Fill would like advice on two matters:

(i) whether the Conceptual Framework affects the valuation of inventories;

(ii) how to calculate the net realisable value of the coal inventory, including the low quality coal. (7 marks)

Required:
Advise the directors of Fill on how the above transactions should be dealt with in its financial statements with reference to relevant IFRS Standards and the Conceptual Framework and its proposed revision where indicated.

Note: The split of the mark allocation is shown against each of the three issues above.