INVENTORIES PAS 2 Merchandising Manufacturing — Service & > assets (non-financial): bwinecs. ‘outiness buginets ‘v hdd for sale in ordinary course of fe Merchanaice, 9 Fisted Gout inthe procest of produc 0 MRERle 5 wie mae v Wn the form of materials suppties 10 be consumed ——+ © ttle ant in the production process] in the rendering of tervices Factery Super Score? en inventories ave under PAS 2 cto recap ¥ Financial Inctrwments ( PFRE a) # Biological ascets * Aerioeharol Produce @ the print of harvest } (enemy) AC To meacurement ¥ imentorier of producers of agricultural, forect, and mincral preducts + NRV € Inventories of commodity brokers and tradere ~ FULCIS RECOGNITION: entity has jogo title over the goods —» invendories ¥ Vipostession + V legal tite Int of ounerchiy a), FOB Shipping Print “Shipping point b) FOB Destination Buyers Loco! ©) Free Alongside, Upon delivering the goods up to the dock next to or ee e vessel on which the goods are fo be shipped 4) Cost, insurance, Freight Upon Indding of the goods jo the vessel ©) Ex-chip When {he goodt are unloaded at the other side Uiustration: POINT OF TRANCFER. Rule: ‘the entity whe owns He goods howd pay ils related cod Seller COUN DATE = on or belo ace let excluded |» meluded Parcnases > mneluded |» trciuded tweet (concunment) — caver: constnor @ —* capitalized [ * Freight cost (out) and other handling costs of goods Out on consignment &) “Moncivertoriabte ents © Freignt coct of retuened goods © otiginal freight cost of returned goods © Commission and other charges © Slorage cost and other reimbursable colt « Freight cost te final customer7 Rance’ Roreing — D6NU. # Sates wl a repurchase agreement Seller * pledge of inventories ——__Pledgor | Borrower * toa Of (nventory ————_—._ Borrower Oe oars mica rene comegns PNET She ond ve nk rein nthe beet ofthe yee Seller She us are vb cand onthe bowie of he der Mt bor aa ar eS Ae Sate poe ere oe ae one oan ear oe Wee We quay YET ‘ie etectuity te ner aere | RESERORN |oencn te aetiver 2 @ Billand Hold Sale ———._ Buyer +x Buyer | qesignat of buyer 8 ese Pac Buyer (upon completion) HEASUREMENT INITIAL MEACUREMENT = COST apple on an ringing bas ¢ = of purchase © Cost of Conversion Other cost (49 bring the inventorieé to its location) Imelasions = 1 a. Regular purchase b. Deferred seilement = lang’ bonyaran bevend teguar cei tm ¢ Lump-sum Purchase, Invoice price —* ne of wade dlcsuet Cash Price: Equivatent —> »! moted wera (rv rer = ethic Ge difetnce. benwen the purenare Pe for narra ret tere ad amnuel pond > tert oem Allocated Purchaie Price using Relative Fair Value ~f tae ~ paste pure = Buccan of Cor ie Fre oe While the inventories are in transit soul Ryo te ere pete acre ‘a ogee ue applicable only Fo manufacturing business ‘buy —> convert —> sell 7 ° tows Dit abr Fin materials + FOH Goods ede atin LORCETAES cate (depression Hance, wba) CONVerSION cost Pit ete location basic Variable, ‘Actwal capacity Fixed Noymal capacity OTHER COTS = necetcary in bringing inventories fo their prevent location and condition Bi + cod of detign for specific. customerc + fleight cost on concignment arrangement (freight on of consignor~ capitalizable)Capitalized if (xPN) #) Abnormal Losses Norrnal tosses —? ierabie lout 2) Adminictrative Expencet Traceable 3) Storage Coctt of Finiched Goods Related jo Raw Mataals | WIP 4) Selling Coote — atime G awiane le WA, alwaye expenced ange ACCOUNTING FOR INVENTORIES PERIODIC _PERPEIVAL © When to update inventories? Upon physical Count every movement through stock cards _ Purpose of physical count Necessary procedure for rewrds accuracy Oboe OGL ~ Teciduaj account Taintained account rd [@ When fo use? Tor Figh-twmoiar 5..,, | for Tow-turnover low-value items highe vatue items JeHthy © purchay, on account Purchases ~ Inventories x AP ~ we ~ @ payment of freigur Fetignt in xx | Inventories me cost Cash x Cash « ® Purchase reruns we * AP w Purchate tens XX] Jnventories me @ Gre on account AR * AR bes Sales me] Sales * coos xm Inventories me © Sales Returns Salles retwns beg Sales cetwens. we AR xe Ae or Inventories ™ Cogs xSUBSEBUENT MEASUREMENT u is si date ~* Ending Inventory FIFO Homogenout ‘Sinmlar produce Coct —* Cost Formulas LONRV contra-asi (ovine) account Je: Loss on inventory write-down, Allowance for inventory wiitedown Allowance for Inventory Weite-clow 7 Reversal of Inv. wp reed ata dauchon Mint cous XY} Lott on inv. WD Ending balance s Beginning balance x LienOTHER RELMIED TOPICS PURCHACE COMMITMENTS = obligations to acquire goods in the future ot a fixed price and fired quantity = non-cancellable Contract: Ls cancellation: huge amount of penalty - purchase order = loes should be recognized \ Loss on purchare commitments [ x Estimated Liability on Purchase Commitments xK “increases im prices = recognize gpin up fo the extent onty Of the lace previously recognized INVENTORY ECIIMATION L Purposes: Impossibility of physical count Cast-bencfit Constvaint | Consideration G Proof of the reasonable accuracy of a physical count F ipoct PRORT Ye0o FA eee 2" Bean (olde seme vie) Total {nventory loss inventory Ecimated endir don physical comnt Imventory bau Inventory shortage G Hetnods: . Interim Annval @ Gross Profit Method Y x ® Retail inventory Method v v Na Sales xe cous (0. GP [Squccze ( Estimated Ending Inventory ) Ns Ivo. NS a7. cous Gor. 00s 100 GP 407. oP ETva COGS = NS X Cost Ratio COLS = NS= Sales Rano Git pratem 36 tee, =e il price \ tagged to each item ~* ending inventory ig at celling price, profit method is a variation oF rejail wetted, out in retail method: 1 the cost ratio is campyted directy wlout foine GP rate > net mork-ups and net Mark-Aowne are céncidlered SOLUTION GUIDE Lot Beginning Inventory XX rod Purchases xx * iw xX Purchace Discounte oy Purchate Returns and Alowanctr 6) 6 Departmental Transfer-in (debit) Xx Ye TERS ee RR Departmental Trancter-out (credit) Ox) ies Abnormal Lactes (x) Cen) OF lente Het Mare-ups WK tin pie Not Mark-d owns sali Bc) = dine, TOTAL GOODS AVAILABLE FOR SALE Xx ENDING INVENTORY (squeere) base Cost DF GOODS SOLD wt = we aa T Hary-up x Mark-down [ cous @ reiail Mark-up cancellation xx Mark-down cancellation @ Gross Sales “ Net mark up we Ne Mark down Ges vetuens om») cnftoyet ent we ex: COCF P00 Morya locses rar wareup 3, Cols @ retail (Net Sales) 307 oof rig. Sling F130. mevu’ | peta New Saling #740 Mark-up cancelation ~ 10 TGRS @ cost x Decrease in SP << waredoon - a Ele cat Od ne ing pie x Inereaein 9c marked” hase dy xe fas \ Cancelation Sain mice ™ = Z rot veyend she Set ae EL @ ratail ~ Markee #5 Multiply by: CoptiaHo® = xx yen the tg pi ELe@ cat © RAtIO™ “i at ci ‘tak, Saar, — + Average MeAnod * FIFO Method + CONSERVATIVE METHOD = Teas @ oot = TMG cost Beg. Inv. @ cost || TOnS @ cost IGAS © rela TOASE retail ~ Bes Inv. @ reait TORS @ petal + net Mnarkdowns