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5 - Inventory Valuation

This document discusses inventory valuation methods under perpetual and periodic inventory systems. It provides examples of calculating ending inventory and profit under FIFO, LIFO and weighted average costing methods. It also discusses the measurement of inventory subsequent to initial recognition under GAAP and IFRS, noting that inventory should be recorded at the lower of cost or net realizable value (NRV) under both standards.

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Furqan Tariq
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107 views5 pages

5 - Inventory Valuation

This document discusses inventory valuation methods under perpetual and periodic inventory systems. It provides examples of calculating ending inventory and profit under FIFO, LIFO and weighted average costing methods. It also discusses the measurement of inventory subsequent to initial recognition under GAAP and IFRS, noting that inventory should be recorded at the lower of cost or net realizable value (NRV) under both standards.

Uploaded by

Furqan Tariq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

INVENTORY VALUATION

APPLICABLE FOR CMA/CPA/ACCA etc.


INVENTORY VALUATION UNDER PERPETUAL SYSTEM
INVENTORY SYSTEMS

PERIODIC PERPERTUAL
INVENTORY METHODS
FIFO FIFO
WEIGHTD AVCO MOVING AVG
FIFO PERPETUAL SYSTEM LIFO LIFO
DATE Column1 UNITS COST AMOUNT
ENDING INVENTORY UNDER FIFO WILL BE SAME EITHER
1-Jan BEG BAL 100 20 2000 PERIODIC SYSTEM IS USED OR PERPETUAL SO ALWAYS USE
MARCH PURCH 20 32 640 PERIODIC TO FIND OUT EI AS IT TAKES LESS TIME
APRIL SALE -70 20 -1400 INCOME STATEMENT
APRIL BAL 30 20 600 SALES 70*40 2800
20 32 640 SALES 40*24 960 3760
1-Jun PURCH 30 14 420 COST OF GOODS SOLD:
1-Oct SALE -30 20 -600 BEG INV 100*20 2000
10 32 320 PURCHASES640+420 1060
1-Oct BAL 10 32 320 COST OF GOODS SOLD 3060
30 14 420 LESS END INV -740
END INV 740 COST OF GOODS SOLD 2320
PROFIT 1440
LIFO PERPETUAL SYSTEM
DATE Column1 UNITS COST AMOUNT INCOME STATEMENT
1-JanBEG BAL 100 20 2000 SALES 70*40 2800
MARCH PURCH 20 32 640 SALES 40*24 960 3760
APRIL SALE -20 32 -640 COST OF GOODS SOLD:
APRIL -50 20 -1000 BEG INV 100*20 2000
BAL 50 20 1000 PURCHASES640+420 1060
1-Jun PURCH 30 14 420 COST OF GOODS SOLD 3060
1-Oct SALE -30 14 -420 LESS END INV -800
-10 20 -200 COST OF GOODS SOLD 2260
1-Oct BAL 40 20 800 PROFIT 1500

MOVING AVERAGE
PERPETUAL SYSTEM
DATE DETAIL UNITS COST AMOUNT INCOME STATEMENT
1-Jan BEG BAL 100 20 2000 SALES 70*40 2800
MARCH PURCH 20 32 640 SALES 40*24 960 3760
MARCH AVG RATE 120 22 2640 COST OF GOODS SOLD:
SALE -70 22 -1540 BEG INV 100*20 2000
BAL 50 22 1100 PURCHASES640+420 1060
1-Jun PURCH 30 14 420 COST OF GOODS SOLD 3060
1-Oct AVG RATE 80 19 1520 LESS END INV -760
1-Oct SALE -40 19 -760 COST OF GOODS SOLD 2300
BAL 40 19 760 PROFIT 1460

EDUCATION4ALL-ARMAN.BLOGSPOT.COM
SIR.ARMAGHAN@GMAIL.COM
INVENTORY VALUATION
APPLICABLE FOR CMA/CPA/ACCA etc.

PRACTICE EXERCISE UNITS COST/SP


1-Jan BAL 200 20
10-Mar PURCH 350 22
20-Jun SALE 250 40
5-Sep PURCH 400 25
2-Oct SALE 400 45

YOU ARE REQUIRED TO PREPARE

INVENTORY SCHEDULE UNDER


1 FIFO METHOD
2 LIFO METHOD
3 MOVING AVERAGE METHOD
FIND OUT PROFIT UNDR
1 FIFO METHOD
2 LIFO METHOD
3 MOVING AVERAGE METHOD

EDUCATION4ALL-ARMAN.BLOGSPOT.COM
SIR.ARMAGHAN@GMAIL.COM
INVENTORY VALUATION
APPLICABLE FOR CMA/CPA/ACCA etc.
INVENTORY VALUATION UNDER PERIODIC SYSTEM

INCOME STATEMENT BY FIFO METHOD


UNITS AVAIL(Bal + purch) 100+20+30 150 SALES
UNIST SOLD 70+40 110 APRIL 70*40 2800
UNITS IN ENDING INV 40 OCT 40*24 960 3760
BY FIFO METHOD PERIODIC SYSTEM COST OF SALES
ENDING INV BE G INV 100*20 2000
1-Jun 30 14 420 PURCH 20*32 640
1-Mar 10 32 320 PURCH 30*14 420
740 COST OFGOODS AVAILABLE 3060
LESS END INV(40) -740
COST OF SALES 2320
GROSS PROFIT 1440

BY LIFO METHOD PERIODIC SYSTEM


ENDING INV 40*20 800 INCOME STATEMENT BY LIFO METHOD
SALES
purchase Inventory
Transaction no of units price Value APRIL 70*40 2800
Beg bal 100 20 2000 OCT 40*24 960 3760
purchase 20 32 640 COST OF SALES
sale 70 BE G INV 100*20 2000
purchase 30 14 420 PURCH 20*32 640
sale 40 PURCH 30*14 420
Total cost of goods available 3060 COST OF GOODS AVAILABLE 3060
AVG COSTING METHOD LESS END INV 40 -800
COST OF SALES 2260
TOTAL COST OF GOODS AVAILABLE 3060 GROSS PROFIT 1500
TOTAL UNITS AVAILABLE 150
Weighted Average cost per unit 20.4 (3060/150)
ENDING INV 20.4*40 816

EDUCATION4ALL-ARMAN.BLOGSPOT.COM
SIR.ARMAGHAN@GMAIL.COM
INVENTORY VALUATION
APPLICABLE FOR CMA/CPA/ACCA etc.

YOU ARE REQUIRED TO PREPARE

INVENTORY SCHEDULE UNDER


1 FIFO METHOD
2 LIFO METHOD
3 MOVING AVERAGE METHOD
FIND OUT PROFIT UNDR
1 FIFO METHOD
2 LIFO METHOD
3 MOVING AVERAGE METHOD

EDUCATION4ALL-ARMAN.BLOGSPOT.COM
SIR.ARMAGHAN@GMAIL.COM
INVENTORY VALUATION
APPLICABLE FOR CMA/CPA/ACCA etc.

MEASUREMENT OF INVENTORY SUBSEQUENT TO INITIAL RECOGNITION


UNDER GAAP Lower of cost or market

INVENTORY
RECORDED AT
LOWER OF COST
COST MARKET OR MARKET
NRV CEILING CRC NRV FLOOR
ITEM A 50 54 53 51 50
ITEM B 60 65 55 58 58
45 39 40 35 39
147
REMEMBER MARKET CAN NOT BE MORE THAN NRV CEILING AND LESS THAN NRV FLOOR SO
TAKE CRC AS MARKET IF IT IS IN THE MIDDLE IF CRC IS LOWER THAN FLOOR TAKE THE FLOOR
AND IF CRC IS HIGHER THAN CEILING THAN TAKE THE CEILING

UNDER IFRS INVENTORY IS RECORDED AT COST OR NRV WHICHEVER IS LOWER


COST NRV CEILING COST OR NRV WHICHEVER IS LOWER
ITEM A 50 54 50
ITEM B 60 65 60
ITEM C 45 39 39
INVENTORY VALUATION UNDER IFRS 149

EDUCATION4ALL-ARMAN.BLOGSPOT.COM
SIR.ARMAGHAN@GMAIL.COM

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