Inventories - 04Act.1 Inventories - 04Act.

2
1 RMI 1D
2 WIP 2A
3 FGI 3B
4 RMI 4C
5 FGI 5C
6 MI 6D
7 NOT 7A
8 MI 8B
9 NOT 9D
10 NOT 10 A
11 MI
12 NOT a
13 NOT
14 NOT
15 REI
16 NOT
17 NOT
18 NOT
19 MI
20 N/A
b

d
 Received Issued Running Balance
Beginning Balance 1,000.00
Purchase 2000 @18 3,000.00
Sale 2500 500.00
Purchase 3000 @22 3,500.00
Sale 200 1,500.00

FIFO Periodic - Merchandise Inventory Balance (1500 * 22) 33,000.00

Received Issued Running Balance

Beginning Balance 1,000@22 1,000.00
Purchase 2000 @18 3,000.00
Sale 2500 500.00
Purchase 3000 @22 3,500.00
Sale 200 1,500.00

FIFO Perpetual - Merchandise Inventory Balance (1500 * 22) 33,000.00

Cost of Goods Available for Sale (Amount)

(1,000 * 22 + 2,000*18 + 3000*22) 124,000.00
Cost of Goods Available for Sale (units) 6,000.00

Average cost per unit (124,000/6,000) 20.66666667

Units on Hand 6,000.00
Weighted Average (Periodic) - Inventory Balance 124,000.00

Received Issued Running Balance

Beginning Balance 1,000@22 1,000.00
Purchase 2000 @18 3,000.00
Sale 2500 500.00
Purchase 3000 @22 3,500.00
Sale 200 1,500.00
Recent Moving Average 21.62
Units on Hand 6,000.00
Weighted Average (Periodic) - Inventory Balance 129,720.00
 22 1000 22,000.00
18 2000 36,000.00

22 3000 66,000.00
6,000.00 124,000.00

average unit cost

12
19.33
19.33
21.62
21.62
 · Question 1
Which standard provides guidance for determining the cost of inventories and the subsequent recognition of th
Response: IAS 2 Inventories
Correct answer: IAS 2 Inventories
· Question 2
· What is the entry to record the purchase returns under Periodic Inventory System?
· Response: Dr. Accounts Payable; Dr. Purchase Returns
· Correct answer: Dr. Accounts Payable; Dr. Purchase Returns

· Question 3
· It is a freight term, which means that the carrier will collect the cost of transporting the goods to the b
· Response: Freight collect
· Correct answer: Freight collect
· Score: 1 out of 1 Yes

· Question 4
· It is a shipping term, which means that the risk of loss is transferred from the seller to buyer at a nam
· Response: Free Alongside
· Correct answer: Free Alongside
· Score: 1 out of 1 Yes

· Question 5
· What is the year-end entry to close the beginning inventory under Periodic Inventory System?
· Response: Dr. Income Summary; Cr. Merchandise Inventory, beg
· Correct answer: Dr. Income Summary; Cr. Merchandise Inventory, beg
· Score: 1 out of 1 Yes

· Question 6
· What is the entry to record the purchase of goods under Perpetual Inventory System?
· Response: Dr. Merchandise Inventory; Cr. Accounts Payable/Cash
· Correct answer: Dr. Merchandise Inventory; Cr. Accounts Payable/Cash
· Score: 1 out of 1 Yes

· Question 7
· What is the entry to record the sales returns under Periodic Inventory System?
· Response: Dr. Sales Returns; Cr. Accounts Receivables/Cash
· Correct answer: Dr. Sales Returns; Cr. Accounts Receivables/Cash
· Score: 1 out of 1 Yes

· Question 8
· It is an inventory costing method, which implies that the ending inventory comprises the earlier purch
· Response: LIFO Method
· Correct answer: LIFO Method
· Score: 1 out of 1 Yes
· Question 9
· What are the two (2) conversion costs?
· Response: Direct Labor and Production Overhead
· Correct answer: Direct Labor and Production Overhead
· Score: 1 out of 1 Yes

· Question 10
· What is the entry to record the purchase of goods under Periodic Inventory System?
· Response: Dr. Purchases; Cr. Accounts Payable/Cash
· Correct answer: Dr. Purchases; Cr. Accounts Payable/Cash
· Score: 1 out of 1
e subsequent recognition of the cost as an expense, including any write-down to net realizable value?

ory System?

ransporting the goods to the buyer.

m the seller to buyer at a named port alongside a vessel designated by the buyer.

odic Inventory System?

ntory System?

ory comprises the earlier purchases/production.

tory System?
IAS2 (PAS2) Inventories

Nature
Cost of Inventories
Include
purchase cost
convertion cost (Direct Labor and Production Overhead)
Other cost to bring to present location and condition

SIM method - if product are not ordinarily interchangeable

FIFO/Average - for voluminous and ordinarily interchangeable product

Classification
· Raw Materials Inventory
· Work-in-process Inventory
· Finished Goods Inventory
Goods included in inventory
Goods in transit (FOB destination (seller), FOB SP(buyer)
Consigned Goods (Property Of Consignor)
Goods Sold w/ buyback agreement (kind of refinancing/loan)

Cost Formulas / Inventory Costing Method

· FIFO (same inventory cost for periodic and perpetual)
· Weighted Average (for periodic)
· Moving Average (For Perpetual)
Inventory Valuation
To be presented in FS at Lower of Cost and NRV (LCNRV)

Inventory Estimation Methods (Beware of Sales Discount)

1

2
Exclude

Abnormal Waste
Store Cost
Overhead Unrelated to Production
Selling Cost (selling or adverrtising)
Forex Loss
Interest Cost for regular products
See Activities

Goods Excluded in Inventory

Goods in transit (FOB destination (buyer)), FOB SP(seller)
Segregated Goods - specially ordered and considered sold upon completion. Exclude
Conditional Sale and Installment Sales
Good sold w/ refund offer - exclude if returns are predictable

see discussion/activities/handouts

NRV = Selling Price - Cost to Complete - Cost to Sell

NRV = SP - CTC - CTS

Gross Profit Method

Retail Inventory Method (COGAS-MAD-NESS)

 NRV - two way

Direct Method

Allowance Method

Base on Sales
Base on COGS

Approximating Average Cost

FIFO Retail (MI beginning not included in analysis)
Periodic

Reduce Inventory End, and close to Income Summary

Setup contra-asset account or allowance account and record loss.

Reduce Inventory End, and close to Income Summary
Perpetual

Increase COGS and decrease Inventory

Setup contra-asset account or allowance account and record loss.

Increase COGS and decrease Inventory
Inventory Estimation Methods
1 Gross Profit Method
Base on Sales
Base on COGS

2 Retail Inventory Method (COGAS-MAD-NESS)

Approximating Average Cost
FIFO Retail (MI beginning not included in analysis)

Approximating Average Cost

FIFO Retail (MI beginning not included in analysis)

Beware of Sales Discount Rationale: No physical movement of Inventory, so ignore!

Purchase Discount Part of COGAS therefore part of analysis!

Cost
Beginning Inventory 140,000.00
Purchases 680,000.00
Purchase Return - 40,000.00
COGAS
Purchase Allowance - 4,000.00
Purchase Discounts - 2,400.00
Freight-in 8,000.00
MAD Additional Markups (Net of Cancellations)
(Markup/Markdown) Markdowns (Net of Cancellations)
Abnormal Losses Abnormal Losses - 36,000.00
Dept. Transfer Out Departmental Trasfer Outs - 17,600.00
Cost of Goods Available for Sale (COGAS) 728,000.00

Cost to Retail Ratio

Goods Available for Sale at Cost 728,000.00
Goods Available for Sale at Retail 1,040,000.00

NESS (Ignore Sales Discount) Deduct:

Sales Sales
Sales Return Sales Return
Employee Discounts Employee Discounts
Normal Losses Normal Losses
Total
Ending Inventory at Retail
Cost To Retail Percentage
Ending Inventory at Estimated Cost

Cost
Beginning Inventory
Purchases 680,000.00
COGAS
 Purchase Return - 40,000.00
COGAS
Purchase Allowance - 4,000.00
Purchase Discounts - 2,400.00
Freight-in 8,000.00
MAD Additional Markups (Net of Cancellations)
(Markup/Markdown) Markdowns (Net of Cancellations)
Abnormal Losses Abnormal Losses - 36,000.00
Dept. Transfer Out Departmental Trasfer Outs - 17,600.00
Cost of Goods Available for Sale (COGAS) 588,000.00

Cost to Retail Ratio

Goods Available for Sale at Cost 588,000.00
Goods Available for Sale at Retail 788,000.00

NESS (Ignore Sales Discount) Deduct:

Sales Sales
Sales Return Sales Return
Employee Discounts Employee Discounts
Normal Losses Normal Losses
Total
Ending Inventory at Retail
Cost To Retail Percentage
Ending Inventory at Estimated Cost
 Include or Not Include in Computation of Cost Ratio?
Retail
252,000.00 COGAS
876,000.00
- 48,000.00

48,000.00 MAD
- 20,000.00
- 44,000.00
- 24,000.00
1,040,000.00 1,040,000.00

70.00%

760,000.00
- 30,000.00
3,000.00
5,000.00
738,000.00 738,000.00
302,000.00
70%
211,400.00

Retail

876,000.00
- 48,000.00

48,000.00
- 20,000.00
- 44,000.00
- 24,000.00
788,000.00 788,000.00

74.62%

760,000.00
- 30,000.00
3,000.00
5,000.00
738,000.00 738,000.00
50,000.00
75%
37,310.00
 Cost Retail
Beginning Inventory Addition Addition
Purchases Addition Addition
Purchase Return Deduction Deduction
Purchase Allowance Cost Only -
Purchase Discounts Cost Only -
Freight-in Cost Only
Markups/Markdowns - Retail only
Abnormal Losses Not part of Inventory Not part of Inventory
Department In Included/Addition Included/Addition
Department Out Deduction Deduction
1 Gross Profit Method
Base on Sales
Base on COGS

Base on Sale
Sales 100%
COGS 75%
GP 25%

Illustrative Problem January 201B to Date of Flood 201A

Inventory, beg 400,000.00 -
Purchases 2,380,000.00 2,240,000.00
Purchase Returs 60,000.00 40,000.00
Sales 3,120,000.00 2,400,000.00

201A
1 COGS COGAS
1,800,000.00 2,200,000.00
2 GP SALES
600,000.00 2,400,000.00
3 GP Rate (201A) GP
25% 600,000.00

201B
II Inventory, beg 400,000.00
Net Purchases 2,320,000.00
COGAS 2,720,000.00
COGS 2,184,000.00
Ending Inventory during the flood 536,000.00
 Base on Sales
Base on COGS Base on Sale Base on COGS
125% 1,470,000.00 1,470,000.00
100% 1,102,500.00 1,176,000.00
25% 2,572,500.00 294,000.00

COGAS 1,207,500.00 1,207,500.00

(COGS) 1,102,500.00 1,176,000.00
Estimated Ending Inventory 105,000.00 31,500.00

201A
Sales 2,400,000.00
COGS 1,800,000.00
GP 600,000.00

EI
400,000.00
COGS
1,800,000.00
SALES
2,400,000.00

III Estimated Inventory Loss.

Undamaged merchandise
Realizable Value of Damaged Goods
Inventory Loss due to Flood
 Inventory, Beginning 250,000.00
Purchases 1,000,000.00
Purchase Return 40,000.00
Purchase Discount 2,500.00
Sales 1,500,000.00
Sales Return 30,000.00
Sales Discount 2,000.00 ignore

201A 201B 201B

100% 3,120,000.00
70% 2,184,000.00
25% 30%

Assume everything is lost during flood.! 536,000.00

(100000 * 70%) - 70,000.00
Damaged Goods - 8,000.00
458,000.00
COGAS: 250,000.00
1,000,000.00
- 40,000.00
- 2,500.00 1,207,500.00
Net Sales(Sales) 1,500,000.00
Sales Ret 30,000.00
1,470,000.00