Mohamed book thesis

Use of Accounting for Inventory In Somaliland Business Firms

UNIVERSITY OF HARGEISA
FACULTY OF BUSNIESS ADMINISTRATION
HARGEISA, SOMALILAND

“The use of accounting for inventory in Somaliland business
firms”

RESEARCH PAPER
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MOHAMED MOHAMOUD MUSE


“BACHELOR DEGREE OF BUSINESS ADMINISTRATION”

“Accounting Stream”

PRAPARED BY:

MOHAMED MOHAOUD MUSE

ADVISOR: MOHAMOUD YUSUF JAMA

ACCADEMIC YEAR
2010-2011
Use of accounting for inventory in Somaliland business firms

Chapter: one Chapter: two

Introduction Literature Review

Chapter: three Chapter: four

Research Analysis and
Methodology discussions

Chapter: five
Chapter: six
Conclusions and
Appendix:
Recommendations
A&B
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Prepared by:
Mohamed mohamoud mouse
ID: BA644

Advisor: Pro. Mohamoud Yusuf Jama

Project Paper Submitted in Partial Fulfillment of the Requirement for the
Degree of Business Administration.

RESEARCH PROPOSAL SUBMISSION FORM

Project Paper Title: Use of Accounting for Inventory in Somaliland business
firms.

Director
UNIVERSITY OF HARGEISA (UOH)
Faculty of Business Administrations (Accounting stream)

Dear Sir,
Attached are the following documents for evaluation and approval:
Chapter 1: Introduction
Chapter 2: Literature Review
Chapter 3: Research Methodology
Chapter 4: Data Analysis
Chapter 5: Conclusion, Recommendation & Future work
References
Appendix

I have thoroughly checked my work and I am confident that this is free from
grammatical errors, weaknesses in sentence construction, spelling mistakes,
referencing mistakes and others, I have checked guidelines for writing project
paper and I am satisfied that the project paper proposal satisfied its
requirements.

Thank you,

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Student Signature: ___________________ Date: __________________

I have read the student research proposal and I am satisfied that it is in line
with the UOH BBA program guidelines for writing project proposal. It is also
free from major grammatical errors, sentence construction weaknesses,
citation and others.

Supervisor's Signature: _________________ Date: __________________

DECLARATION

Name: Mohamed Mohamoud Mouse

Student's Number: BBA644

I hereby declare that this project paper is the result of my own study based on
my interest to enter into this line of business, aside from parental guidance
and my friends support to enable me to establish this study. For the latest
internet system of which I conduct research as one of my source for this study,
quotations for the inquiry and summaries which have been duly acknowledge.

I hereby verify that this research is not submitted in substance for any other
degree.

Signature: __________________ Date:_________________

Supervisor Name: Mohamoud Yusuf Jama

Signature: __________________ Date:_________________

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Application to conduct Research Paper

PART A: STUDENT PARTICULAR

1. Student’s Name: Mohamed Mohamoud Mouse

Student's Number: BBA644

PART B: PARTICULAR ABOUT THE PROJECT

1. Title of the project: Use of Accounting for Inventory in Somaliland business
firms

2. Research Objective: The main objective of this research is to find the most
proper accounting method on performing the Inventory by comparing different
methods of inventory accounting systems

3. Proposed Research Method

Research Design: Inquiry and Internet

PART C: FACULTY'S INPUTS

1. Topic chosen: Accepted / Not Accepted
2. Suggested supervisor for the student:

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Dedicated to

My loved parents;
Mrs. Halima and Mr. Mohamoud

May ALLAH rest their souls in the heaven and be merciful to them as they were
to me in my childhood (Amen) and honorable professor who had a great talent
teaching method, and brought beautiful studies.

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ACKNOWLEDGEMENTS

First, thanks to “ALLAH” who gave me the power of doing this program and
implementing, who also allowed me to reach my spiral goals.

First of all to complete this research required the assistance, guidance and
support of a number of people to whom I would like to express my deeply
appreciation and acknowledge them which makes this project finally seem
uncomplicated.

I would like to thank my supervisor Pro. Mohamoud Yusuf Jama for his
guidance throughout the preparation of this study. Realizing this project would
not have been achievable without his support and the encouragement of him
this masterpiece would never have been completed.

For his special guidance and un-accountable advice for doing the research and
extremely diligent in reviewing text chapters, exercise, problem, and their
solutions that paves the way in implementing and preparing this research
paper

I am also would like to thanks many people who guided and support me
throughout the developing of the text and express my sincere appropriation
their expert attention that effectively guided this book through production
process.

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The text and its sumplent have been enriched by the comments of many
reviewers’. I am indebted to each of them, particular to the following educators
who assisted me.

I also, would like to thanks for Ilham Dayib Ali who support and examine all
my questionnaires, examples, and exercise to ensure that I am technically
accurate for my presentation material literally.

I am also, thanks to dozen of my colleagues for adopting their encouragement
and cooperative support.

Abstract

The objectives of the paper is to investigate how business firm’s use for
accounting system to their inventory in the business operation in Somaliland.
Research through data collection has been made in different location that
surveying much more questionnaires of time.

One of the most important processes in any organization is the inventory.
Finding the right inventory is another vital element. Some organizations are
doing their inventory quarterly which needs a lot of efforts and very precise
procedure.

Therefore it is very necessary to accept an efficient inventory process to give
the right status.
The researcher has chosen known organization to examine which method is
efficient to fulfill this type of operation.

Electronic and computer shops, supermarkets and other trade channels is the
company that applied the accounting inventory.

This project is examining most known accounting methods. And then select the
most proper accounting method on performing the inventory.

The researcher has chosen known organization to find out the inventory
accounting methodology that is right to the daily sale transactions by keeping

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out the entire inventory fraudulently and material misrepresentations that can
lead a fact failure.

We recognized that the organization’s Material managements is the another
dramatic way of finalized the research paper on the material competencies, and
the inventory uniqueness that explain the overall statements of the thesis.

DCONTEXT PAGE

Cover page………………………………………………………...01

Title page……………………………………………………………..02

Research proposal submission form……………………………03

Declaration page……………………………………………………04

Application to conduct research paper………………………….05

Dedication page………………………………………………….…06

Acknowledgement………………………………………………….07

Abstract……………………………………………………………….8

Table of contents………………………………………………….09

List of figures……………………………………………………..10

List of abbreviations…………………………………………….12

1.0 INTRODUCTIOSN:

1.1 Introduction…………………………………………….…13
1.2 Background……………………………………………….14

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1.3 Thesis statements………………………………………..15
1.4 Objectives of the study………………………………….15
1.5 Significant…………………………………………………16
1.6 Scope of the study……………………………………….17
1.7 Structure of the paper………………………………….18

2.0 LITERATURE REVIEW:

2.1 definition of inventory accounting……………………..19

2.2 definition of accounting……………………………………19

2.3 types of inventory accounting…………………………..21

2.4 just in time inventory control…………………………...22

2.5 conventional inventory pricing……………………….…22

2.6 last in first out ………………………………………..…23

2.7 major advantage of LIFO…………………………..…24

2...8 major disadvantage of LIFO……………………….24

2.9 setting inventory strategy…………………………….25

2.10 key considerations…………………………………...26

2.11 inventory accounting methods………………….….27

2.12 method of inventory evaluation……………………28

2.13 inventory control…………………………………..…29

2.14 economic order quantity……………………….….30

3.0 RESEARCH METHEDOLOGY:

3.1 introductions…………………………………………...31

3.2 research design………………………………………..31

3.3 method of data collection……………………………..31

3.4 in-depth interview……………………………………..32

3.5 data collection source……………………………..…32
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3.6 sampling methods…………………………………….32

3.7 limitations……………………………………………....33

4.0 ANALYSIS AND DISCUSSIONs:

4.1 introduction…………………………………………....34

5.0 CONCLUSION AND RECMMENDATIONS:

5.1 conclusions………………………………………………60

5.2 recommendations………………………………………62

6.0 APPENDIX:

6.1 Appendix A

Questionnaires……………………………………………..64

6.2 Appendix B

Bibliography…………………………………………………….68

LIST OF TABLES & FIGURES PAGE

Tab & Fig 4.1………………………………………………………35

Tab & Fig 4.2………………………………………………………36
Tab & Fig 4.3………………………………………………………37

Tab & Fig 4.4………………………………………………………38

Tab & Fig 4.5………………………………………………………39

Tab & Fig 4.6……………………………………………………….40

Tab & Fig 4.7……………………………………………………….41

Tab & Fig 4.8………………………………………………………42

Tab &Fig 4.9………………………………………………………43

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Tab & Fig 4.10…………………………………………………….44

Tab & Fig 4.11…………………………………………………....45

Tab & Fig 4.12……………………………………………………46

Tab & Fig 4.13……………………………………………………47

Tab & Fig 4.14……………………………………………………48

Tab & Fig 4.15……………………………………………………49

Tab & Fig 4.16……………………………………………………50

Tab & Fig 4.17……………………………………………………51

Tab & Fig 4.18……………………………………………………52

Tab & Fig 4.19……………………………………………………53

Tab & Fig 4.20………………………………………………………54

Tab & Fig 4.21………………………………………………………55

Tab & Fig 4.22………………………………………………………56

Tab & Fig 4.23……………………………………………………..57

Tab & Fig 4.24…………………………………………………….58

Tab & Fig 4.25…………………………………………………….59

LIST OF ABBREVIATIONS:
 FIFO: first in first out
 LIFO: last in first out
 JIT: just in time
 EOQ: economic order quantity

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CHAPTER ONE

1.0 An INTRODUCTION

1.1 INTRODUCTION

This book will introduce the use of accounting for inventory in Somaliland
business and the primary issue in accounting for inventories is the amount of
cost to be recognized, and it is intended to.

 Introduce you the use of accounting for inventories in Somaliland
business firms.
 What accounting system they use for their small business
 Types of inventory that small business carries.
 Cost of carrying inventory in small business in Somaliland
 How to account for the recognition as an expense
 Role played by inventor in the business enterprises in Somaliland

All these factories are main core of the book that has been to understand the
inventories accounting system in Somaliland business firms that can exist in
all time.
Also, shows you that the inventories are represent the major investment in all
kind of business large once as well as small because many companies failed
their inventory tied up to much money.

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There are three principal types of business organizations that have developed
as ways of owning and operating business enterprise.
In general, business entity or organizations are:

• Sole proprietorship

• Partnerships

• Corporations

1.2 BACKGROUND

Accounting and managing of inventory, which typically represents 45% to 90%
of all expenses for business, is needed to ensure that the business has the
right goods on hand to avoid stock-outs, to prevent shrinkage (spoilage/theft),
and to provide proper accounting. Many businesses have too much of their
limited resource, capital, tied up in their major asset, inventory. Worse, they
may have their capital tied up in the wrong kind of inventory. Inventory may be
old, worn out, shopworn, obsolete, or the wrong sizes or colors, or there may be
an imbalance among different product lines that reduces the customer appeal
of the total operation.

As every business use on inventory accounting system it is really takes a
serious corrective and careful management accounting procedures to report
accurately otherwise a misappropriations and material misrepresentation can
occur. So by using accounting system it necessary all the inventory that a
business has to go through accounting procedures and special policies.
The word 'inventory' can refer to both the total amount of goods and the act of
counting them. Many companies take an inventory of their supplies on a
regular basis in order to avoid running out of popular items. Others take an
inventory to insure the number of items ordered matches the actual number of
items counted physically. Shortages or overages after an inventory can indicate
a problem with theft (called 'shrinkage' in retail circles) or inaccurate
accounting practices.

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Companies also take an inventory every quarter in order to generate numbers
for financial reports and tax records. Ideally, most companies want to have just
enough inventories to meet current orders. Having too many products
languishing in a warehouse can make a company look less appealing to
investors and potential customers. Quite often a company will offer significant
discounts if the inventory numbers are high and sales are low. This is
commonly seen in new car dealerships as the manufacturers release the next
year's models before the current vehicles on the lot have been sold. Furniture
companies may also offer 'inventory reduction sales' in order to clear out their
showrooms for newer merchandise.

The conflicting objectives of cost control and customer service often pit a firm’s
financial and operating managers against its sales and marketing system. By
helping the organization to make better decisions, the accountants can help
the business enterprise to change in a very positive way that delivers increased
value for the business operating activity.

1.3 THESIS STATEMENT
For accounting inventories in business firms needs a much accurate
accounting methods and transaction records, which tied up the inventory
accounting purpose and proper procedures that leads further satisfactory of
business investors and other regulatory body.

Each country has its own rules about accounting for inventory that fit with
their financial-reporting rules. Inventory Turn is a financial accounting tool for
evaluating inventory and it is not necessarily a management tool. An
organization's inventory can appear a mixed blessing, since it counts as an
asset on the balance sheet, but it also ties up money that could serve for other
purposes and requires additional expense for its protection. Physical counts
and quantity records shall be reconciled and adjusting entries prepared to
bring physical and financial records into agreement. If products are too
hazardous or inaccessible for a physical count, alternative means (such as
perpetual records and measuring techniques) shall be used to establish
quantities.

Use of accounting for inventory is a crucial in keeping track of smooth going
accountability of firm’s inventory management and their accounting procedures
and inventory policies to the stewardships.
So, statement of the problem inaugurates how accounting for inventory is so
important.
To achieve project mandates it has to make sure;
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 How small business use for inventory accounting system
 The role of accountability of business managers
 Inventory transaction processing
 How small business make inventory reporting system
 Relevant facts related to the inventory accounting system

1.4 THE OBJECTIVE OF RESEARCH STUDY
It is very important that the business enterprise use accounting procedures
and policies to their inventory management system which can make more
accurate measurement of inventory on hand by the business firms through
period of time.
Does this make effective and reliable inventory accounting system to small
business so as to find easy inventory management and accounting system
throughout the business enterprise? We do this so.
In this project, we consider how effectively and efficiently small business
enterprise use accounting system for their inventory throughout accounting
period and fiscal year.

So, the objective of the research is;
 To fulfill the partial academic requirements to attain the Bachelor Degree
of BBA
 To distinguish between perpetual and periodic inventory system
 To identify the major advantage and disadvantage of LIFO
 To identify the method of accounting of inventory that has been selected
by the business enterprises
 To explain how inventory are evaluated in business enterprises
 To identify when inventory are valued at net realized value
 To explain how inventory are reported and analyzed
1.5 Significance of the research

The purpose of the study is to highlight or examined overall importance of
using inventories accounting in the Somaliland business firms throughout the
operation period.

Opening a wide range of operation activities among the business firms and
their accounting procedures, the physical inventory counts should be
performed or supervised by business firms other than the person responsible
for the inventory or the person maintaining the inventory records to help
ensure the integrity and objectivity of the counts reported.
These significant of the project paper shows how it important to see how the
firms are uses the inventory accounting systems and their application and in
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applying Somaliland business firms. Because there is a lot of
misunderstanding among the business operations and their relevant actors, it’s
also the customers may believe that there are a lot of weakness in the business
accounting. Specially, in the inventory accounting systems in Somaliland
business firms, the functions related on business operation and its systems is
served to the community on the basis on trade purpose.
The importance of this project comes mainly from the importance of the
inventory roll in the life of any business as a vital and essential tool in
management and accounting. Most small businesses underestimate the
importance of their inventory or of inventory management process. They do not
realize that many of the headaches are caused by a lack of control and
knowledge of their inventory. This study plays vital roles to ensure and clarify
in inventory accounting systems of Somaliland business firms/organization
whether it is strong or weak and all entire service about the accounting
inventory systems in business forms. Also, this project paper is important for
the researcher to fulfill the partial requirement for the award of BA in
accounting departments by the University Of Hargeisa (UOH).

1.6 Scope of the study
The study has been confined for the use of accounting for inventory in
Somaliland business organization. When the sampling data will be collected,
especially the study focused on the accounting inventory reporting systems in
Somaliland business firms.
The business firms try to engage the contemporary accounting systems for
further detailed information among the business organizations on the basis of
environmental force and microfinance situations. This focused on the business
developments, so it needs for more crackdowns to find a well standardized and
smoothly developed operation to the business organizations.

1.7 The structure of the paper

This project consists of six chapters; each one has its own indication and
detailed explanations, there is additional hypothesis which shows the material
collected and integrated idea about the project paper.

The first chapter concentrates all the basics of the project by telling some
basic information that related to the project paper incorporated with overview
of the project paper, core of the paper.

Introduction of the project paper; which tells how the project has been
developed and arranged on the basis of inventory accounting systems and its
usages.
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Project background, which highlights the basic background of accounting and
managing of inventory of the business firms, fundamental principle of
accounting, and challenge.

Thesis statements; which tells how thesis is organized and directed under the
study.

Objective of the research study, including identifications and explanations.

Significance: this shows how inventory accounting is important to business
firms.

Scope of the study: how the firms are confined the method of accounting
standardized or contemporary systems are used, how large does the firms
operated in inventory accounting purpose.

Second chapter focused on “Literature review”; including an overview, history,
plan and schedule, types of inventory, steps, pricing methods, inventory
accounting categories, techniques, reasons for keeping inventory,
merchandising enterprises, and economic order quantity model.

Third chapter discussed the research methodology which is also the core the
project and incorporate with the “research designing, method of data collection
which are two “primary and secondary”, in-depth interview and data collection
source, sampling methods, and analyzing techniques.

Fourth chapter is determined for analyzing and findings that including the
inventory policy and store function, monitor and evaluate the management
process, data presentation and interpretation, data analyzing and hypothesis
testing, and findings, and accounts that frequently misstated.

Fifth chapter addresses the conclusion and recommendations and look-over
the serious coherence of inventory management and reports, recommendation
has been applied on the basis of research.

Sixth chapter Appendixes; appendix A information related to use of
accounting for inventory in Somaliland business firms, and appendix B which
is determines the summary of the findings.

Reference;

Reference has been selected among the books including accounting books,

websites and others such as internets.

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Chapter two

2.0 LITERATURE REVIEW

An overview of inventory accounting

2.1 What is inventory accounting?

Inventory accounting may sound like a huge undertaking but in reality, it is
quite straightforward and easy to understand. You start with the inventory you
have on hand. No matter when you sell product, the value of your inventory
will remain constant based on accepted and rational methods of inventory
accounting. Those methods include weighted average, first in/first out, and last
in/first out. Christopher R. Marburg, CPA, MBA 1

So, let us define the two terms individually.

2.2- Definition of Accounting
Accounting is the language of business. It is a standard set of rules for
measuring a firm’s financial performance. Assessing a company’s financial
performance is important for many groups, including:
➢The business officers (managers and employees)
➢ Investors (current and potential shareholders)
➢ Lenders (banks)
➢ General public
In another word, accounting is a standard language of measuring financial
performance by a variety of organizations. Accounting follows GAAP, which are

1
Christopher R. Marburg, CPA, MBA
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guidelines for measuring and presenting financial information on a fair,
consistent, and straightforward basis.
GAAP is developed by FASB on the behalf of the SEC, with input from a variety
of interest groups. IFRS are international accounting standards and are
developed by IASB.
Accounting is a system in which identify, analysis, measure, record,
summarize and communicate relevant economic information to other for
decision making Mr. Wilkinson 2
Accounting is the system a company uses to measure its financial
performance by noting and classifying all the transactions like sales,
purchases, assets, and liabilities in a manner that adheres to certain accepted
standard formats. It helps to evaluate a Company’s past performance, present
condition, and future prospects. “Accounting Basics”
Inventory is asset items held for sale in the ordinary course of business or
goods that will be used or consumed in the production of good to be sold. The
description and measurement of inventory requires a careful attention.
Inventory accounting may sound like a huge undertaking but in reality, it is
quite straightforward and easy to understand. You start with the inventory you
have on hand. No matter when you sell product, the value of your inventory
will remain constant based on accepted and rational methods of inventory
accounting. Those methods include weighted average, first in/first out, and last
in/first out.
Inventory again can be defined as goods being held for resale. In
manufacturing, inventory can be raw materials, work-in-process, and finished
goods. Let’s be clear, working with inventory can be complex depending on the
type and size of business. However, the basic concepts of inventory are not
hard to grasp and you really should have some familiarity with them.
The first step is to conceptualize the “inventory process”. In other words, think
about what is going on. For example, suppose your company is in business to
sell a product. The product is acquired either by manufacturing it or
purchasing it as a finished product. During an accounting period, such as one
month, all, or a portion of the inventory is sold. Hopefully, the cost of the
product did not exceed its sale price so that a profit was realized. With the
money from the profit, more inventories can be purchased to sell, cover
overhead expenses, and pay yourself.

2
Mr. Wilkinson 2

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The purpose of accounting is to provide a means of recording, reporting,
summarizing, and interpreting economic data. In order to do this, an
accounting system must be designed. A system design serves the needs of
users of accounting information. Once a system has been designed, reports can
be issued and decisions based upon these reports are made for various
departments. Since accounting is used by everyone in one form or another, a
good understanding of accounting principles is beneficial to all procedures and
special policies.

Economy: maintain the value of items in stock at the lowest practical levels in
order both to economize the use of working capital and to minimize the costs of
storage.
Identification: systematically defining and describing all items in stock.
Receiving: accepting, from all sources, all items which are used in the
government unit.
Inspection: examining incoming items for quality and quantity

2.3 TYPES OF INVE3TORY ACCOUNTING SYSTEM
1 Periodic inventory system
Periodic inventory accounting involves an increase (debit) to Purchases when
acquisitions are made. Remember, “Purchases” is a general ledger (GL) account
found in the cost of sales section of the Profit & Loss Statement. At the close of
the period, a physical count of the remaining inventory is required to determine
the amount unsold. The quantity is then priced and recorded in order to
determine the cost of goods sold.

Under periodic inventory system, the following journal entry is recorded at the
end of accounting period.

2 Perpetual inv4entory system
As acquisitions of new inventory are made, they are charged (debited) to the
Inventory account. Each time a sale is made a corresponding entry is made
removing (crediting) the item from Inventory and charging (debiting) COGS (or
Purchases). The result is that the Inventory account maintains a current
balance, and the COGS account reflects the cost of goods sold to date. One of
the benefits of using a perpetual inventory system is that you can run interim
financial statements without the necessity of a physical inventory count. In

3
Financial Accounting II,
4
Financial Accounting II
Page 21


addition, shortages and any other discrepancies may be discovered and
corrective action taken.
One way to remember the difference between the two methods is that the
periodic system discloses what is on hand, whereas, the perpetual system
discloses what should be on hand.
Perpetual inventory system updates inventory accounts after each purchase or
sale. Inventory subsidiary ledger is updated after each transaction. Inventory
quantities are updated continuously.

Under perpetual inventory system, changes in merchandise inventory account
are recorded after each transaction.

2.4 JUST-IN-TIM5E Inventory Control (JIT)

"Just-in-time production is a simple idea that may be difficult to implement, "
wrote Gershon and Weiss6. "The basic concept is that finished goods should be
produced just in time for delivery, and raw materials should be delivered just
in time for production.

When this occurs, materials or goods never sit idle, which means that a
minimum amount of money is tied up in raw materials, semi finished goods,
and finished goods…. The just-in-time approach calls for slashing production
and purchase lot sizes and also buffer stocks—but incrementally, a little at a
time, month after month, year after year.

The result is sustained productivity and quality improvement with greater
flexibility and delivery responsiveness." This production concept, which
originated in Japan and became immensely popular in American industries in
the early and mid-1990s, continues to be hailed by proponents as a viable
alternative for businesses looking for a competitive edge.

2.5 Conventional Inventory Pricing Methods

1- FIFO
First-in, first-out (Last-in, Still-here) implies that the items that were
purchased first will be sold first. Cost of goods sold is calculated by using the
oldest prices and ending inventory is calculated based on the most recent
prices. Using this method tends to result in a fair statement of inventory on the
Balance Sheet.

5
Khalid Al Kaabi, Inventory Accounting
6
Gershon and Weiss

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This is because the ending inventory was purchased most recently. Further,
when inventory turns over regularly, the prices used for the cost of goods sold
are somewhat current resulting in fair presentation of the cost of sales amount.
2- LIFO
Last-in, first-out (First-in, Still-here) implies that the items most recently
acquired will be the first sold. Cost of goods sold is calculated by using recent
prices, while ending inventory is calculated using the oldest prices. This
method tends to emphasize the matching concept accounting principle by
matching current costs with current sales on the Profit and Loss Statement.
2.6 Last-in/First-out Accounting Method.
Under7 the LIFO method, a business assumes that the last item added to
inventory is the first item sold. Thus, current sales are reduced by the cost of
the most recently acquired inventory to determine the net income from the
sale. (Under the FIFO method, the business assumes that the first item added
to inventory is the first item sold.)

When inventory costs are rising, as in an inflationary period, the LIFO method
results in lower taxable income since the cost of goods sold reflects the more
recent, higher inventory values. Conversely, if inventory costs decline during a
year, LIFO will increase taxable income as current lower-cost inventory values
are used to determine the business’ cost of goods sold.

Under the Internal Revenue Code, a business may only use the LIFO method if
it also applies it for financial-accounting purposes.

For many retail businesses, LIFO is a more accurate method for measuring
financial performance and calculating the associated income tax. LIFO takes
into account the greater costs of replacing inventory, thereby giving a more
conservative measure of both the financial condition of the business and the
economic income subject to tax. Absent LIFO, phantom profits would be taxed.
In addition, LIFO improves a company’s cash flow, which allows the company
to use its retained capital more efficiently to finance ongoing inventory
replenishment.

LIFO repeal would mean a forced change in fundamental tax accounting for
any business that has historically relied on LIFO for its tax reporting, including
countless retailers. As a result, such businesses would have to recapture their
LIFO reserves.

7
Intermediate Accounting Books
Page 23


The result would be substantial additional income tax, even if spread over
several years, especially for businesses that have relied on LIFO for many years
or even decades. Since companies would have no economic income from such
an accounting adjustment, they would effectively be taxed on non-existent cash
flow.

2.7 Major advantage of LIFO

Matching, the more recent cost are matched against current revenues to
provides a better measures of current earnings, and the inventory profit occur
when the inventory cost matches against sale and inventory replacements.
A tax benefit, which is the major reason why LIFO has, became popular. As
long as the price level increase inventory quantities do not decrease, a deferral
income tax occurs.
Improved a cash flow, which is related to the tax benefits, because the tax
most be paid in cash as consequences.8
Future earning benefits, with LIFO the firm’s future reports earning will not
be affected substantially by the future price decline.
2.8 Major disadvantages
Reducing earnings, many corporate managers view the lower profit of
reporting under LIFO method in inflationary time as distinct disadvantages
that reports the profits rather than lower tax.
Inventory understated, the LIFO may have inventory distorting effects on
company’s balance sheet.
Physical flow, LIFO does not approximate the physical flow of the items except
in peculiar situations.
Involuntary liquidations, the distortion in reporting the income for given
period may results as well as consequences that are detrimental from an
income tax point of view.
Weighted Average
This method involves assigning the same unit price to items in Inventory and to
items in COGS. The price assigned is the average price for the period calculated
by taking the total cost of beginning inventory plus the cost of all units
purchased during the period and dividing the total by the number of units
involved.This consists of either merchandise or manufacturer which has always goods
available for resale to customers or further processing. However, retailers are not the

8
Intermediate Accounting Books
Page 24


only businesses that maintain inventory. Manufacturers also have inventories related
to the goods they produce. Goods completed and awaiting sale are termed “finished
goods” inventory.
2.9 Setting an Inventory Strategy
9No single inventory strategy is equally effective for all businesses. Indeed,
there are many different factors that can impact the usefulness of a given
inventory strategy, including positioning of inventory, rationalization,
segmentation, and continuous improvement efforts. Moreover, small
businesses in particular often face financial and logistical limitations when
erecting their inventory systems. And of course, different industries have
different inventory needs. Consumer goods producers, for instance, need to
have well-balanced inventories at the point of sale, while producers of
industrial and commercial products typically do not have clients that require
the same degree of delivery lead time.

When a company is faced with a need to establish or reevaluate its inventory
control systems, business experts often counsel their corporate clients to
engage in a practice commonly known as "inventory segmenting" or "inventory
partitioning." This practice is in essence a breakdown and review of total
inventory by classifications, inventory stages (raw materials, intermediate
inventories, and finished products), sales and operations groupings, and excess
inventories. Proponents of this method of study say that such segmentation
break the company's total inventory into much more manageable parts for
analysis.

2.10 Key Considerations

Inventory management is a key factor in the successful operation of fledgling
businesses and long-time industry veterans alike. For both kinds of companies,
determining whether their inventory systems are successful or not is
predicated on one fundamental question: Does the inventory strategy insure
that the company has adequate stock for production and goods shipments
while at the same time minimizing inventory costs? If the answer is yes, then
the company in question is far more likely to be a successful one. Conversely, if
the answer is no, then the business is operating under twin burdens that can
be of considerable consequence to its ability to survive, let alone flourish.

According to business experts, perhaps no factor is more important in ensuring
successful inventory management than regular analysis of policies, practices,
and results. Companies that hope to establish or maintain an effective
9
Khalid Al Kaabi, Inventory Accounting.
Page 25


inventory system should make sure that they do the following on a regular
basis:

1- Regularly review product offerings, including the breadth of the product
line and the impact that peripheral products have on inventory.

2- Ensure that inventory strategies are in place for each product and
reviewed on a regular basis.

3- Review transportation alternatives and their impact on inventory/warehouse
capacities.

4- Undertake periodic reviews to ensure that inventory is held at the level that
best meets customer needs; this applies to all levels of business, including raw
materials, intermediate assembly, and finished products.

5- Regularly canvas key employees for information that can inform future
inventory control plans.

6- Determine what level of service (lead time, etc.) is necessary to meet the
demands of customers.

7- Establish and regularly review a system for effectively identifying and
managing excess or obsolete inventory, and determining why these goods
reached such status.

8- Devise a workable system wherein "safety" inventory stocks can be reached
and distributed on a timely basis when the company sees an unexpected rise in
product demand.

9- Calculate the impact of seasonal inventory fluctuations and incorporate
them into inventory management strategies.

10- Review the company's forecasting mechanisms and the volatility of the
marketplaces, both of which can (and do) have a big impact on inventory
decisions.

11- Institute "continuous improvement" philosophy in inventory management.

12- Make inventory management decisions that reflect a recognition that
inventory is deeply interrelated with many other areas of business operation.

Page 26


To summarize, inventory management systems should be regularly reviewed
from top to bottom as an essential part of the annual strategic and business
planning processes.

2.11 Inventory Accounting Methods

There are two methods used to account for inventory. The accrual method is
recommended for organizations that track their inventory balances. These
organizations know their ending inventory balance, but can be unsure of their
cost of goods sold (COGS). The second method, the adjustment method, is
recommended for organizations that track COGS. In the event an organization
has a system that can track both amounts (ending inventory and COGS), either
method may be used. In the case of organizations that do not have an internal
system that can track inventory, a physical count must be done each month.

The following formula is used to calculate cost of goods sold regardless of the
method used:

Beginning Inventory + Inventory purchases during period(Less returns)= Cost
of goods available for sale-Ending inventory= Cost of goods sold.

The accrual method is recommended for organizations that track their
inventory balances. This method is performed by the following step:-

1- All inventory (less returns) acquired during the period is recorded by
debiting purchases the offsetting entry is to accounts payable.

2- At the end of each month, update the FIS balances of inventory based upon
the balances maintained in internal records

3- It is required that a physical inventory count be done at least once per fiscal
year. After the inventory on hand is counted, adjust the internal records to
match the physical count. Once the internal records are adjusted, update the
balances in the FIS. If, based on the physical count, the organization has
experienced any shrinkage in the inventory balances.

4- If, when reviewing the Monthly Operating Detail, extra purchases are
identified that were not posted directly to COGS/AP, they would need to be
added via the AP accrual process.

Some organizations do not purchase products or materials for resale; however,
they do maintain inventory for their own use in the provision of a service.

Page 27


The adjustment method is recommended for organizations that track their
COGS balances. The method could be performed by the following step :-

1- The inventory is debited when inventory is acquired. This is a significant
difference when compared to the accrual method.

2- Sales of inventory are recorded by debiting cost of goods sold, and crediting
inventory for the cost of the merchandise sold. This provides a continuous
record of balances in both the inventory object code and cost of goods sold.

3- A physical inventory and reconciliation to the general ledger is required at
least once a year.

4- If the physical inventory count differs from the official inventory figures
recorded in the general ledger, the inventory shortage object code is debited or
the overage is credited to appropriately adjust the FIS inventory figures to
physical count values.

2.12 Methods of Inventory Valuation
10Generally Accepted Accounting Principles require that the lower of cost of
market be used no matter which inventory valuation method is used. A
valuation method is used to compute the cost of the inventory dollar amounts
and then it is compared to the market dollar amount. The lower of the two
amounts must be used when recording inventory.

Regardless of which inventory accounting method is used, inventory values
must be assigned. Four types of historical-cost-based inventory valuation are
covered on the following pages: Specific Identification, Average Cost, FIFO, and
LIFO. The retail Method, which uses an estimated inventory cost, is also
discussed.

1-Specific Identification

Specific Identification traces actual cost flows. The flow of costs through goods
available for sale into cost of goods sold or cost of ending inventory matches the
physical flow of inventory units. Each unit of inventory and its cost must be
specifically identified.

2-Average Cost Valuation Method

10
Khalid Al Kaabi, Inventory Accounting.
Page 28


In this valuation method, the calculation of cost of goods is averaged among
the units of inventory. The two methods consist of weighted average, which is
used in a perpetual system.

2-Moving Average--Perpetual

Continuous or moving average assigns a unit value to cost of goods available
for sale. In this scenario, the average cost determines cost of goods sold at

the time of each sale. This method requires a calculation of average unit cost
after each purchase.

3-FIFO (First In First Out)

Regardless of the actual physical flow of goods, FIFO is calculated by assuming
that goods entering inventory first are sold first, and goods entering inventory
last are sold last. In a sense, the earliest inventory costs are considered cost of
goods sold and the latest are considered ending inventory. There is a FIFO
method for both Periodic and Perpetual.

4-LIFO (Last in First Out)

Regardless of the actual physical flow of goods, LIFO is calculated by assuming
that goods entering inventory last are sold first, and goods entering inventory
first are sold last. In a sense, the latest inventory costs are considered cost of
goods sold and the earliest are considered ending inventory. There is a LIFO
method for both Periodic and Perpetual.

5-Retail Method

The retail method estimates the dollar amount of ending inventory, and is
acceptable for external reporting if it yields results that reasonably approximate
the result that would have been obtained under one of the cost flow methods.

The simple form of the Retail Method requires the following:

1. Cost and retail beginning inventory selling prices.

2. Cost and retail current period purchases.

3. Retail sales for period.

2.13 Inventory control

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Inventory control is concerned with minimizing the total cost of inventory. In
the U.K. the term often used is stock control. The three main factors in
inventory control decision making process are.

A physical inventory is a count of what is currently in stock in the warehouse,
comparing that count to what the computer thinks is in stock, and making any
necessary adjustments to get the computer counts to match the warehouse
counts. Then post the costs of those physical count adjustments to General
Ledger and provide an inventory variance report to see where the counts were
off, and by how much.

Some warehouses do a full warehouse physical inventory only once a year.
Others do a full warehouse count on a monthly basis.

The physical Inventory option can be used to do full warehouse counts or cycle
counts. If you plan on doing cycle counts, we must keep in mind that cycle
counts can most easily be done by item category, by picking location or by
using the inventory item.

Whether doing a full warehouse physical count or a cycle count, the company
is comparing what is actually out in the warehouse to what the computer has
recorded as being in stock out in the warehouse.

Therefore it is necessary to make sure that what has been done in the
warehouse has been entered on the computer and has been posted. It is also
important that what has been entered into the computer has in fact been
completed in the warehouse.

The company wants to make sure that any stock picked to fill orders has been
Filled and Shipped on the computer and posted. Also the company dose not
wants to include stock that has been used to fill orders in its counts.

2.14 Economic Order Quantity Model
11The economic order quantity model (EOQ) was developed to find the optimal

order quantity. Ahlstrom (2001) found that 84 percent of the firms surveyed
used the EOQ model for inventory control. Annual holding cost will increase
with an increase in lot size, but in contrast, the annual order cost decreases
with an increase in lot size.
Material cost is independent of lot size because it is assumed to have a fixed
price.

11
Operation Research Books
Page 30


The concept of the EOQ is that there is a tradeoff between the fixed order cost
and the holding cost.
The EOQ assumes the four following inputs: annual demand of the product,
fixed cost incurred per order, cost per unit, and holding cost per year as a
fraction of product cost. Using those inputs, there are three costs that must be
considered when deciding on lot size. The first is annual material cost which is
annual cost of material purchased.

3.0 Research METHODOLOGY:
3.1 Introduction

Although many studies and researches has been made in the field of inventory
accounting, yet this project tries to highlight the implementations of inventory
accounting methods in practice in one of the leading companies in Somaliland.

Most of published researches regarding the subject look to inventory and
inventory accounting, being the subject matter, from an academic point of view
where it is hard to find a published research which emphases on a particular
research study and conducted in a real life company.

Research represents the strategies involves in collecting and analyzing data
collected, in order to have meaningful interpretations of the research findings.
This section attempts to give an insight into the way and manner in which this
research was carried out. This includes the mode of data collection, how these
data were analyzed and the research design.
3.2 Research Design
This has been conducting through interviews, data collection, sampling system,
analysis techniques and self administered questioners that have been
embodying the overall objectives of the research study and empathy of the
paper.
3.3-Method of data collection
The research of the project has been made through two methods of
data collection and they are;
Page 31


 Primary
 secondary
The primary data is the results of the questionnaires and the
interviews gathered from the business enterprise in Somaliland
Also, look over how business firms get accounting records to their inventory
and cite of inventory management system in small companies in Somaliland.
Secondary data collection which focused on the literature of current field of
use of accounting for inventory in Somaliland business firms that leads the
business activity and trading system.

One of the main idea of this adherent is how data have been collected from
different local business that shows the inventory accounting policies to see
whether that the inventory record are free from errors and misrepresentation in
its accounting records and financial presentation of the fiscal year of business
firms in Somaliland
Study research is used to study the contemporary phenomenon in its real-life
context data for the studies in this research and was collected from multiple
sources. It is generally accepted that multiple data sources allow an
investigator to address a broader range of historical and behavioral issues.
3.4 In-depth interviews
Inventories should be properly stored and physically secured to prevent theft,
destruction, or deterioration. Physical security measures should be
commensurate with the size, type, and value of the inventory. Sensitive or
attractive items should be safeguarded by storage in locked or limited access
storage areas.
3.5-Data collection sources
Data collection source can include relevant documents, such as position of
inventory, inventory descriptions, accounting manuals, firm’s structure, charts
and training documents as well as some published information about business
firms, such as financial statements and annual reports. Inventory can be
viewed as a real option, specifically an option on future sales. Real options
create value in uncertain conditions and, using contingent claims payoffs from
inventory positions, can be mapped on to the underlying asset.
3.6 sampling methods
A simplified sample method has been used for the research study which
consists of twelve business forms in Somaliland on the basis of inventory
management and accounting procedures.
Besides this, the business firms in Somaliland always use to account for
accurate measurement on inventory that they have on hand.

Page 32


As usual, it is realized that the Somaliland business firms used tp account for
their inventory periodically. Also, it has been realized which method they use to
price, costing system, and how they evaluate inventory periodically.
A sampling method that has been selected including the following firms;-

I. HI-TECH ELECTRONICS
II. SUPER TATA TECHNOLOGY
III. DARASALAM SUPER MARKET
IV. HADI SUPER MARKET
V. INDO-DERO COMPANY
VI. ALNUR- MANUFACTURER
VII. MECED STATIONARY
VIII. OMAR INTERNATIONAL TRADING CO.

3.7 Limitations
The most once that have come across was the times that lead shorting
distributions of the questionnaires.

The most companies’ dot understanding the meaning of the study and they on’t
want to clarify their inventory accounting systems.

The main limitation faced by the researcher was the lack of commitment by the
company’s accountants and staff to help in feeding accurate information and
providing the proper data to complete the project in required time frame.

The facilitation was inadequate such that to implements to the research study.

There are no hard and fast rules to abide by business firms, but some
extremely useful guidelines to help your thinking about the subject are exists.

On the other hand, because suppliers have problems with inventory control,
just as sellers do, they may be interested in making deals to induce customers
to purchase inventories brig the limitations.

An inventory that is not compatible with the firm’s market also become the
most big constraints that firms will lose profitable on the sales leads to limited
the research study.

Lack of keeping an inventory fresh and up to date requires constant attention
by any organization, large or small makes the limitations of the study.
Page 33


To find out Periodic reviews of the inventory data to detect slow-moving or
obsolete stock and to identify fast sellers are were essential limitations for the
research.

Economy: the economic scale was the limitations to maintain the value of the
lowest practical levels.
Identification: systematically defining and describing all items in stock.
Receiving: accepting, from all sources, all items which are used in the business
unit.
Inspection: examining the exact data and other incoming for further quality
and quantity in the research study.

Chapter four
4.0 FINDINGS

4.1 Introduction

The inventory policy of Somaliland business firm can only be appreciated in the
context of its unusual circumstances as the leading business inventory model
and one of the functional of the business firm’s within the country. It then
implies that whatever policy is adopted at the inventory level must take into
consideration the overall company’s objectives.

The main determinant of the company’s inventory policy is the private economy
itself in which the demand of their product stands as another factor.
According to business managers, the company is constantly reviewing
performance as a unit of the economy; thus what happens in the economic
environment affects the policies and strategies of the company as a whole and
the raw material as subsets.

The company’s objective is to maintain quality, increase market shares and
Profitability.

This implies that enough inventories should be available to enhance continues
purchasing and selling. This fact also determines the levels of inventory, which
the company keeps. So, we will see the discussion of this research and their

Page 34


findings in a form of figures and percentage that identify the degree of
inventory accounting usages in the field of business operations.

This is indicating us that the largest number of s/l businesses are
independently owned businesses, the question is that if this is the fact what is
the type of business that use inventory accounting system? We will see the
answer of this in our analysis and discussions.

Q1- what type of business do you have?

60% of the respondents are indicated that they have sole proprietorship, and
28% have told that they own partnership and 8% explained in form of
corporation.

table 4.1.

Business type frequency percentage
sole proprietorship 15 60%
Partnership 7 28%
Corporation 3 12%
Total 25 100%

Page 35


percentage

100%
100%
80% 60%
60% 28%
40% 8%
20%
0%
sole partnership corporation total
proprietorship

sole proprietorship partnership corporation total

Figure 4.1 what type of business do you have

Q 2: do you use inventory accounting system in your business?

48% of the respondents indicated that they use little inventory accounting
system in their business, while respondents explained they use as moderately,
and 52% of the respondents identified that they not use inventory accounting
systems in their accounting procedure.

table 4.2:

Choice No of respondents Percentage
Yes 12 48%
No 13 52%
Total 25 100%

Page 36


Percentage

100%
100%

80%
48% 52%
60%

40%

20%

0%
Yes No Total

Yes No Total

Figure 4.2: do you use inventory accounting system in your business.

Q3- if you use, which of the following method is used?

32% of the corporation respondent shows that they use of inventory accounting
system like perpetual, , while 24% of the partnerships indicated the use of
periodic and 28% of respondent have explained the use of both, and 16% of the
respondents demonstrated that they do not use at all.

table 4.3:

Choice No of respondents percentage
perpetual system 8 32%
periodic system 6 24%
both 7 28%
Page 37


Now of the above 4 16%
Total 25 100%

percentage
100%
100%

80%

60%
32% 28%
40% 24%
16%
20%

0%
Perpetual periodic both of them Non of them Total

Perpetual periodic both of them Non of them Total

Figure 4.3: if you use, which of the following method is used.

Q4- do you think that the perpetual inventory system has more accurate
then the periodic?

40% of the respondents sole proprietorship demonstrated that the perpetual
invocatory system is more accurate than the periodic, 32% of partnership
explained the use of perpetual is more measurable then the periodic, while 28%
of corporation indicated that the perpetual is more accurate then the periodic.

table 4.4:

Choice frequency percentage
Yes 10 40%
No 8 32%
I don't know 7 28%
Page 38


Total 25 100%

percentage
100%
100%

80%
53%
60% 40%
40%

20% 7%

0%
Yes No I don't know

Yes No I don't know

Figure 4.4: do you think that the perpetual inventory system has more accurate then the
periodic.

Q5- Does the accounting for inventory needs strong internal control?

52% of respondents demonstrated that inventory control is one of the most
crucial accounting records, while 28% of the respondents indicated it’s not
good to have inventory accounting control and 20% of the respondents
identifies that they do not sure whatever is it.

table 4.5:

Yes 13 52%
No 7 28%
Not sure 5 20%
Total 25 100%

Page 39


percentage
100%
100%

80%

60% 46%

40% 27% 27%

20%

0%
Yes No Not sure Total


Figure 4.5: Does the accounting for inventory need strong internal control.

Q6-does FIFO assume the order that good goods purchased?

38% of the respondents indicated that the FIFO have a good order of goods
purchase, while 16% of the respondents demonstrated that is not good to have
FIFO order of goods purchased, and 46% of the respondents identified that
they have no Idea about FIFO methodology.

table 4.6:

Yes 5 38%
No 2 16%
Not sure 6 46%
Total 13 100%

Page 40


percentage
100%
100%
90%
80%
70%
60% 46%
50% 38%
40%
30% 16%
20%
10%
0%


Figure 4.6: does FIFO assume the order that good goods purchased?

Q7-does the FIFO have good inventory reserve?

31% of the respondents explained that FIFO have good inventory reserve, 46%
of the respondents determined that it has not d that much alternative to
reserve the inventory orders, and 23% of the respondents say we have no idea
about the FIFO reserve.
tabel 4.7

Choice Respondents Percentage
Yes 12 31%
No 8 46%
I don 't know 6 23%
Total 26 100%

Page 41


Percentage
100%
100%

80%

60% 46%
31%
40% 23%

20%

0%
Yes No I don 't know Total

Yes No I don 't know Total

Figure 4.7: does the FIFO have good inventory reserve.

Q8-does the FIFO approximate the physical flow of goods?

36% of the respondents determined that physical flow of goods is not assured,
while 24% of the respondents demonstrated that it is necessary to have a good
physical flow of goods, and 40% explained that is no ultimate usage of physical
goods flow.

Table 4.8:

Not sure 9 36%
Yes 6 24%
No 10 40%
Total 25 100%

Page 42


percentga
100%
100%

80%

60%
36% 40%
40% 24%

20%

0%
Not sure Yes No Total


Figure4.8: does the FIFO approximate the physical flow of goods

Q9- Does the ending inventory is closed to the current cost?

24% of the respondents identified that the ending inventory is good for too
close to the current cost, whereas 28% of the respondents says that they are
not sure, and 48% of the respondents identify that ending inventory is good to
close to the current cost.

Table 4.9:

Not 6 24%
Not sure 7 28%
Yes 12 48%

Page 43


Total 25 100%

Percentage
100%
100%

80%

60% 48%

40% 24% 28%

20%

0%
Not Not sure Yes Total

Not Not sure Yes Total

Figure4.8: Does the ending inventory is closed to the current cost.

Q10-Does LIFO good for using periodic inventory system?

48% of the respondents explained that they are not sure what is it, whereas
36% of the respondents identify that it’s good for using LIFO to the periodic
inventory system, and 16% say is not good to have LFIO in periodic system.

table 4.10:

Not sure 12 48%
Yes 9 36%

Page 44


No 4 16%
Total 25 100%

percentage
100%
100%

80%

60% 48%
36%
40%
16%
20%

0%


Figure 4.10: Does LIFO good for using periodic inventory system.

Q11- Does LIFO method matches the cost of last purchase against
revenue?

32% of the respondent explained it’s an appropriate that LIFO matches cost of
last purchase against revenue, while 48% of the respondents identify no, and
20% of the respondents demonstrated that they don’t know at all.

tabel 4.11
Yes 8 32%
No 12 48%
I don't know 5 20%
Page 45


Total 25 100%

Figure 4.11: - Does LIFO method matches the cost of last purchase against revenue?

pecentage
100%
100%
90%
80%
70%
60% 48%
50%
32%
40%
30% 20%
20%
10%
0%
Yes No I don't know Total

Yes No I don't know Total

Q12- Does company use for LIFO reserve purpose?

40% of the respondents were reported that they do not sure, whereas 36%
respondents determined it’s good for using LIFO reserve, and 24% say no for
purpose of LIFO reserve.

table 4.12:
Not sure 10 40%
Yes 9 36%
Page 46


No 6 24%
Total 25 100%

Percentage
100%
100%

80%

60%
40% 36%
40% 24%

20%

0%


Figure 4.12: Does company use for LIFO reserve purpose

Q13- Does LIFO good for tax and external purpose?

20% of the respondents say we don’t know, whereas 32% of the respondents
demonstrated not for tax purpose, and 48% explained yes for good tax and
external purpose.

table 4.13:

I don't know 5 20%
Not 8 32%
Page 47


Yes 12 48%
Total 25 100%

Percentage
100%
100%

80%

60% 48%
32%
40% 20%
20%

0%
I don't know Not Yes Total

I don't know Not Yes Total

Figure 4.13: Does LIFO good for tax and external purpose

Q14-does the internal control practiced in maintaining inventory?
48% of the respondents say yes for internal control practicing, 32% of
respondents determined not to maintain internal control to the inventory, and
20% identify that they do not sure.

table 4.14

No of respondents Percentage
Yes 12 48%
Not 8 32%
Not sure 5 20%
Total 25 100%

Page 48


Figure 4.14: does the internal control practiced in maintaining inventory.

Percentagge
100%
100%
90%
80%
70%
60% 48%
50%
32%
40%
30% 20%
20%
10%
0%
Yes Not Not sure Total

Yes Not Not sure Total

Q15- Does the inventory of resale merchandised need various controls?

60% of the respondents demonstrated that it is necessary the merchandising
needs various internal control, whereas 16% of the respondents say no and
24% of the respondents answered that they do not sure.

table 4.15

choice No of respondents Percentage
Yes 15 60%
No 4 16%

Page 49


Not sure 6 24%
Total 25 100%

Percentage
100%
100%

80%
60%
60%

40% 24%
16%
20%

0%


Figure 4.15: Does the inventory of resale merchandised need various controls.

Q16 does reconciling good for the physical count of the inventory?

36% of the respondents identify that it is good to have physical reconciling
counts to the inventory, whereas 44% of the respondents said not to reconcile,
and 20% of the respondents mention that they don’t know.

table 4.16:

Page 50


Yes 9 36%
Not 11 44%
I don't know 5 20%
Total 25 100%

Percentagr
100%
100%
80%
60% 44%
36%
40% 20%
20%
0%
Yes Not I don't know Totol

Percentagr

Figure 4.16: does reconciling good for the physical count of the inventory

Q17- there is three different approaches of LIFO methods?

36% of the respondents yes that there are three different approaches of LIFO
methods, whereas 48% said not sure, and 20% of the respondents determined
no three different LIFO methods.

Table 4.17:

Page 51


Yes 9 36%
Not sure 12 48%
No 5 20%
Total 25 100%

Figure 4.17: there are three different approaches of LIFO methods

Percentage
100%
100%

80%

60% 48%
36%
40%
20%
20%

0%
Yes Not sure No Total

Yes Not sure No Total

Q18- Does the advantage of LIFO can be including the tax benefits?

56% of the respondents yes, the advantage of LIFO is tax benefits, while 20% of
the respondents mentioned that no tax benefits’ and 24% of the respondents
determined that they do not sure.

Page 52


Table 4.18:

Yes 14 56%
No 5 20%
Not sure 6 24%
Total 25 100%

Percentage
100%
100%
80%
56%
60%
40% 20% 24%

20%
0%


Figure 4.18: Does the advantage of LIFO can be including the tax benefits

Q19- Does your audit procedures included physical inventory
observations?

36% of the respondents explained that audit procedure includes the physical
inventory observations, while 48% of the respondents said no, and 16% of the
respondents determined that it is not applicable.

Table 4.19

Yes 9 36%

Page 53


No 12 48%
N/A 4 16%
total 25 100%

Percentage
48%
50%
36%
40%
30%
16%
20%
10%
0%
Yes No N/A

Yes No N/A

Figure 4.19- Does your audit procedures included physical inventory.

Q20- is inventory priced at lower cost or market?

64% of the respondents said yes to have an inventory pricing, whereas 36% of
respondents said no for inventory pricing.

This evidence is showing the certainty of inventory pricing at lower cost or
market.

Figure 4.20:
Page 54


Yes 16 64%
No 9 36%
Total 25 100%

Percentage
100%
100%

80% 64%

60%
36%
40%

20%

0%
Yes No Total

Yes No Total

Figure 4.20: is inventory priced at lower cost or market.

Q21- Do the F/statement discloses the method of inventory evaluation?

72% of the respondents yes for inventory evaluation with financial statement,
while, 28% of the respondents said no for inventory evaluation.

This identifies how well a financial statements con be disclosed in the methods
of inventory evaluations.

Figure 4.21:


Page 55


Yes 18 72%
No 7 28%
Total 25 100%

Percentage
100%
100%
72%
80%
60%
28%
40%
20%
0%
Yes No Total

Yes No Total

Figure 4.21: Do the financial statement discloses the method of inventory evaluation

Q22- Is the determination of inventory cost includes the overhead items?

32% of the respondents demonstrate that it is include inventory cost to the
overhead items, 68% of the respondents said no for overhead items.

These are some indications that determines and demonstrate how inventory
costs can be include some overhead items exclude otherwise.
the explaining what is the overhead cost that can be consider and include the
overall inventory accounting management in the field of merchandise.

Table 4.22:
Page 56


Choice No respondents Percentage
Yes 8 32%
No 17 68%
Total 25 100%

Percentage
100%
100%
68%
80%
60%
32%
40%
20%
0%
Yes No Total

Yes No Total

Figure 4.22: Is the determination of inventory cost includes the overhead items.

Q23- Does your business determine the inventory needs and then create
plan to fill those need?

56% of the respondents identify that is good to have inventory needs that
stimulate the business, and 44% of the respondents said no inventory needs.

Table 4.23:
Yes 14 56%
No 11 44%

Page 57


Total 25 100%

Percentage
100%
100%

80%
56%
60% 44%

40%

20%

0%
Yes No Total

Percentage

Figure 4.23: Does your business determine the inventory.

Q24-Did your business use monitor and evaluation process by the
management?
60% of the respondents demonstrate that their business use monitoring and
evaluation, while 36% of the respondents identify no, and 4% of the
respondents explained not applicable.
This is clarifies the need and understand major value of monitoring and
evaluations of the firm’s inventory accounting procedures.

Table 4.24:
Yes 15 60%

Page 58


No 9 36%
N/A 1 4%
Total 25 100%

Percentage
100%
100%

80% 60%
60%
36%
40%

20% 4%

0%
Yes No N/A Total

Percentage

Figure 4.24: Did your business use monitor and evaluation process by the management.

Q25- Does your business implement the EOQ concept?
32% of the respondents identified that their business no implement the
economic order quantity, while 40% of the respondents demonstrate that they
maintain the economic order quantity, and 28% 0f the respondents mentioned
that they are not applicable.

The identifying inventory accounting characteristics includes a large number of
firms that merchandise a similar product at same time having similar stores
has been found.

Page 59

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