Chapter12

INVENTORY AND COST OF SALES Recognition and measurement of inventory Relationship between cost, GP and SP Establishing cost of inventory Cost formulas Lower of cost and NRV Inventory errors Estimating inventory

OUTCOMES ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

RECOGNITION AND MEASUREMENT OF INVENTORY ,[object Object],Inventory on hand at beginning of period Inventory on hand at end of period ( A on SOFP ) Purchases of inventory during the period Inventory sold during the period ( COS on I/S ) Cost of inventory available for sale

Recognition and measurement of inventory. . . ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Cost of goods held for resale included in COS to determine GP Cost of consumable stores included in expenses to determine profit 

RELATIONSHIP BETWEEN COST, GP AND SP ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

ESTABLISHING THE COST OF INVENTORY ,[object Object],Cost of inventory Costs of purchase Other costs = + ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Goods in transit ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],Supplier’s warehouse Foreign port Destination port Buyers premises Goods in transit . . .

No entry processed for goods in transit ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Entry processed for goods in transit ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Goods on consignment ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Inventory shortages ,[object Object],[object Object],[object Object],[object Object]

Periodic system ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Perpetual system ,[object Object],[object Object],[object Object],[object Object]

Solution : Inventory shortages - Periodic

COST FORMULAE ,[object Object],[object Object],[object Object],[object Object],[object Object]

Specific identification ,[object Object],[object Object]

FIFO ,[object Object],[object Object],[object Object],[object Object]

Weighted average ,[object Object],[object Object],[object Object],[object Object],[object Object]

Solution : Cost formulas (Periodic)

Solution : Cost formulas (Perpetual)

LOWER OF COST OR NET REALISABLE VALUE ,[object Object],[object Object],[object Object],[object Object],[object Object], 

Accounting for the write-down of inventory (periodic system) ,[object Object],[object Object],[object Object],[object Object],[object Object]

Accounting for the write-down of inventory (perpetual system) ,[object Object],[object Object],[object Object],[object Object]

INVENTORY ERRORS ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],GP overstated GP understated

Inventory errors ... ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],CI understated CI overstated

ESTIMATING INVENTORY ,[object Object],[object Object],[object Object]

Chapter12

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Chapter12