It is God who arms me with strength and keeps my way secure

PSALM 18:32
Conceptual Framework and Accounting Standards
CHAPTER 10
Inventories
INVENTORIES - assets held for sale, in process, or to be used in production
 Bought and held for resale (Merchandise/Trading Concern)
 Real estate property held for resale
 RM, WIP, FG, Factory Supplies (Manufacturing)

Cost of Inventories
1. Cost of Purchase - purchase price, import duties, irrecoverable taxes, freight,
handling and other cost directly attributable to the purchase
- less trade discounts, rebates, and similar items
2. Cost of Conversion - direct labor
- systematic allocation of fixed and variable production overhead incurred
a. Fixed Production Overhead - constant regardless of volume of production
b. Variable Production Overhead - varies upon volume (IL and IM)
3. Other Cost - may limitations yung inclusion niya sa cost
 Abnormal amounts of wasted materials, labor, and other costs
 Storage cost, pag hindi na ginagamit sa production (FG Storage)
 Administrative Overheads
 Distribution/Selling Costs

Cost of Inventories of Service Providers - labor and other cost of personnel directly
engaged in providing the services
- Labor associated with sales and administrative activities are expensed

Cost Formulas
1. First In, First Out - first bought, first sold
- COGS = Old Prices; Inventory = New Price
- Favors the SFP
- Improper match of cost to revenue, understatement of the COGS
- Inflation = Highest Net Income; Deflation = Lowest Net Income
2. Weighted Average - relatively easy to apply and approximates current value
- pag perpetual, cost differs when there are purchase and returns
- (CGAFS/GAFS) x Goods on Hand = Inventory Cost
3. Last In, First Out - last bought, first sold
- COGS = New Prices; Inventory = Old Prices
- Favors the IS
- Inflation = Lowest Net Income; Deflation = Highest Net Income
4. Specific Identification - explicitly stated sa kung saang price kinuha yung inventory
- for inventories that are interchangeable or yung may pinaglalaanan

Measurement of Inventory - LCNRV and is measured through FIFO/Weighted

Average

Net Realizable Value - estimated selling price less estimated cost of completion and
estimated cost of disposal
- written down on item by item or individual basis
 Cost of Inventories may not be recoverable if:
1. Inventories are damaged
2. Inventories have become partially or wholly obsolete
3. Selling Price have declined
4. Estimated cost of completion/disposal had increased

Accounting for Inventory Writedown

 Cost is lower than NRV
X NRV is lower than Cost - loss is accounted for separately using the allowance
method (loss method)
- allowance can be adjusted for the subsequent years depending on the difference
between cost and LCNRV
- Allowance increase = add loss; Allowance decrease = record gain on reversal of
inventory writedown na pwede lang hanggang sa set na allowance