Beruflich Dokumente
Kultur Dokumente
Inventories
Accounting, 21st Edition
Valuation of Inventories:
COST BASIS APPROACH
Learning Objectives
1. 2. Identify major classifications of inventory. Distinguish between perpetual and periodic inventory systems. 3. Identify the effects of inventory errors on the financial statements. 4. 5. Understand the items to include as inventory cost. Describe and compare the methods used to price
inventories.
Inventory Issues
Classification
Inventories are:
items held for sale, or goods to be used in the production of goods to be sold.
Manufacturer
Classification
Classification
Three accounts
Finished goods
Companies use one of two types of systems for maintaining inventory records perpetual system or periodic system.
Perpetual System
1. Purchases of merchandise are debited to Inventory.
2. Freight-in is debited to Inventory. Purchase returns and allowances and purchase discounts are credited to Inventory. 3. Cost of goods sold is debited and Inventory is credited for each sale. 4. Subsidiary records show quantity and cost of each type of inventory on hand.
The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold.
Periodic System
1. Purchases of merchandise are debited to Purchases. 2. Ending Inventory determined by physical count. 3. Calculation of Cost of Goods Sold: Beginning inventory Purchases, net Goods available for sale Ending inventory $ 100,000 800,000 900,000 125,000
$ 775,000
Merchandise Inventory
ASSETS
OWNERS EQUITY
Net Income
REVENUES
The effect of an error on net income in one year (2010) will be counterbalanced in the next (2011), however the income statement will be misstated for both years.
Illustration: Yei Chen Corp. understates its ending inventory by HK$10,000 in 2010; all other items are correctly stated.
The understatement does not affect cost of goods sold and net income because the errors offset one another.
Sold goods
Sold goods
Cost Flow Assumption Adopted does not need to equal Physical Movement of Goods
Method adopted should be one that most clearly reflects periodic income.
34%
19%
10%
0%
4%
Fifo Lifo Average Other
Jan. 1 Inventory 4 Sale Cost of 10 Purchase Mdse. Sold 22 Sale 28 Sale 30 Purchase
10 7 8 4 2 10
$20
The firm begins the year with 10 units of Item 127B on hand at a total cost of $200.
Date
Jan. 1 4
Qty.
Unit Cost
Qty. 7
Unit Cost
Total Cost
Qty.
10 3
20
140
Date
Jan. 1 4 10
Qty.
Unit Cost
Qty. 7
Unit Cost
Total Cost
Qty.
10 3 3 8
20
140
21
168
Because the purchase price of $21 is different than the cost of the previous 3 units On on hand, the inventory balance of January 10, the firm 11 units is accounted for separately.
On January 22, the firm sold four units for $31 each.
On January 22, the Unit Total firm sold four units Date Qty. Cost Cost Qty. for $31 each. Jan. 1
4 10
22
Purchases
Inventory Balance
Qty.
10 3 3 8 7
7
8 21 168 3 1
20
140
20 21
60 21
Of the four units sold, three are from the first units in (fifo) at a cost of $20.
Date
Jan. 1 4 10 22 28
Qty.
Unit Cost
Qty. 7
Unit Cost
Total Cost
Qty.
10 3 3 8 7 5
20
140
21
168 3 1 2 20 21 21 60 21 42
On January 30, purchased ten additional units of Item 127B at $22 each.
Date
Jan. 1 4 10 22 28 30 Totals
Qty.
Unit Cost
Qty.
Unit Cost
Total Cost
Qty.
10 3 3 8 7 5 5 10 15
Unit Total Cost Cost 20 20 20 21 21 21 21 22 200 60 60 168 147 105 105 220 $325
On January 30, purchased 7 20 8ten additional 21 168 units of Item 127B at $22 each.
3 1 2 20 21 21
140
60 21 42
10
18
22
220
$388 13 $263
The firm begins the year with 10 units of Item 127B on hand at a total cost of $200.
20
140
7
8 21 168
20
140
7
8 21 168 4
20
140
21
84
On 22,sold, the all come Of January the 4 units firm sells four from the most recent purchase units atat a $31 cost each. of $21 each.
7
8 21 168 4 2
20
140
21 21
84 42
7
8 21 168 4 2
20
140
21 21
84 42
7
8 21 168 4 2
20
140
21 21
84 42
Totals
18
$388
13
$266
Fifo Periodic
Fifo Periodic
200 units @ $9 300 units @ $10 400 units @ $11 100 units @ $12 1,000 units available for sale during year Jan. 1 Beginning Inventory Mar. 10 Purchase Sept. 21 Purchase
Nov. 18 Purchase
Fifo Periodic
200 units @ $9 300 units @ $10 400 units @ $11 100 units @ $12 = $1,800 = = 3,000 4,400 Jan. 1 Mar. 10 Sept. 21
1,200
Nov. 18
1,000 units available $10,400 for sale during Cost of merchandise year
available for sale
Fifo Periodic
A physical count on December 31 reveals that 700 of the 1,000 units have been sold. Using fifo, the first units purchased are theoretically the first units sold. We begin the count with January 1.
Fifo Periodic
Sold these 200 200 units @ $9
Sold these 300 units @300 $10 Sold 400 units 200 of @these $11 200 100 units @ $12 $1,800 = $ 0 = = 3,000 0 4,400 2,200
Jan. 1
Mar. 10 Sept. 21
1,200
Nov. 18
1,000 units available $10,400 $ 3,400 for sale during year Ending inventory
Fifo Periodic
Cost of merchandise available for sale $10,400 Less ending inventory 3,400 Cost of merchandise sold $ 7,000
$4,400
700 units
$1,200 $10,400
Merchandise Inventory
$2,200 $1,200 $3,400 200 units at $11 100 units at $12
1,000 units
300 units
Lifo Periodic
Lifo Periodic
200 units @ $9 300 units @ $10 400 units @ $11 100 units @ $12 Jan. 1 Beginning Inventory Mar. 10 Purchase Sept. 21 Purchase
Nov. 18 Purchase
1,000 units lifo, available Using the most recent batch for sale during purchased is considered the first year
Lifo Periodic
200 units @ $9 300 units @ $10 400 units @ $11 100 units @ $12 1,000 units available for sale during year
Nov. 18 Purchase
Lifo Periodic
200 units @ $9 Sold 200 of 100 300 units @these $10 400 Sold units these @400 $11 100 Sold units these @100 $12 = $1,800 = = = 3,000 1,000 4,400 0 1,200 0 Jan. 1 Mar. 10 Sept. 21 Nov. 18
1,000 units available $10,400 $2,800 for sale during year Ending Inventory
Lifo Periodic
Cost of merchandise available for sale $10,400 Less ending inventory 2,800 Cost of merchandise sold $ 7,600
merchandise inv
$1,800
200 units at $9
100 units at $10
$1,000
$2,800 Cost of Merchandise Sold
300 units
$4,400
$2,000
$4,400 $1,200 $7,600
$1,200 $10,400
1,000 units
700 units
periodic method is based 300 units @ $10 Mar. 10 Purchase on the average cost of units.21 Purchase Sept. 400 units @identical $11
100 units @ $12 1,000 units available for sale during year
Nov. 18 Purchase
100 units @ $12 1,000 units available for sale during year
Notice that gross profit and net income are lowest under LIFO, highest under FIFO, and somewhere in the middle under average cost.
LIFO results in the highest cash balance at year-end (because taxes are lower). This example assumes that prices are rising. The opposite result occurs if prices are declining.
Under IFRS, LIFO is not permitted for financial reporting purposes. Nonetheless, LIFO is permitted for financial reporting purposes in the United States, it is permitted for tax purposes in some countries, and its use can result in significant tax savings.
LIFO Reserve
The End
+ poin
Exercise 8-18
tugas
Problem 8-2 Problem 8-7