Professional Documents
Culture Documents
Inventories
(ToA.203)
L. R. Cabarles
Relevant Standard
PAS 2 Inventories
Nature of Inventories
Inventories include
Assets held for sale in the ordinary
course of business (finished goods)
Assets in the production process for
sale in the ordinary course of business
(work in process), and
Materials and supplies that are
consumed in production (raw
materials)
What
What should
should be
be included
included in
in
inventories?
inventories?
All items substantially owned by
the entity should be included in
inventory regardless of location.
Measurement
Measurement of
of inventories
inventories
Inventories are required to be
stated at the lower of cost and
net realizable value (NRV).
costs of purchase
costs of conversion
(Direct labor and overhead)
Costs of Purchase
Purchase price
Recording
Recording of
of Purchases
Purchases
Gross
Gross and
and Net
Net Method
Method
Gross
Cash
discounts
Net
Recording
Recording of
of Purchases
Purchases
Gross
Gross and
and Net
Net Method
Method
Gross
Cash
discounts
Deducted from
purchases when
taken
Net
Recording
Recording of
of Purchases
Purchases
Gross
Gross and
and Net
Net Method
Method
Cash
discounts
Gross
Net
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Accounts
Recording
payable
of
(Gross)
Recording
of Purchases
Purchasesxx
Cash (Net)
Gross
and
Gross
and Net
Net Method
Methodxx
Purchase discounts
xx
Cash
discounts
Cash
discounts
taken
Gross
Net
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Accounts
Recording
payable
of
(Gross)
(Net)
xx xx
Recording
of Purchases
Purchases
Cash (Net)
Gross
and
Gross
and Net
Net Method
Methodxx
Purchase discounts
xx
Gross
Net
Cash
discounts
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Cash
discounts
taken
Deducted from
purchases
(purchase
discounts)
Accounts
Recording
payable
of
(Net)
xx
Recording
of Purchases
Purchases
Cash (Net)
Gross
and
Gross
and Net
Net Method
Methodxx
Gross
Net
Cash
discounts
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Cash
discounts
taken
Deducted from
purchases
(purchase
discounts)
Already deducted
from purchases
Accounts
Recording
payable
of
(Gross)
Recording
of Purchases
Purchasesxx
Cash (Gross)
xx
Gross
and
Gross
and Net
Net Method
Method
Gross
Net
Cash
discounts
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Cash
discounts
taken
Deducted from
purchases
(purchase
discounts)
Already deducted
from purchases
Cash
discounts
not taken
Accounts
Recording
payable
of
(Gross)
(Net)
xx xx
Recording
of Purchases
Purchases
Purchase
Cash (Gross)
discounts
xx xx
Gross
and
Method
Gross
and Net
Netlost
Method
Cash (Gross)
xx
Gross
Net
Cash
discounts
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Cash
discounts
taken
Deducted from
purchases
(purchase
discounts)
Already deducted
from purchases
Cash
discounts
not taken
Included in
purchases
(part of inventory
cost)
Accounts
Recording
payable
of
(Net)
xx
Recording
of Purchases
Purchases
Purchase
Gross
and
Method
Grossdiscounts
and Net
Netlost
Methodxx
Cash (Gross)
xx
Gross
Net
Cash
discounts
Deducted from
purchases when
taken
Deducted from
purchases
whether taken or
not
Cash
discounts
taken
Deducted from
purchases
(purchase
discounts)
Already deducted
from purchases
Included in
purchases
(part of inventory
cost)
Reported as
other expense
Cash
discounts
not taken
Cost Formulas
Specific identification
For items that are not ordinarily
interchangeable
Goods or services produced and
segregated for specific projects
FIFO or Weighted Average Cost
For all other items
Cost
Cost Formulas
Formulas
Specific identification
Cost of EI = Units on hand x Specific UC
FIFO
Cost of EI:
Units on hand x UC of latest purchases
Weighted Average
Cost of EI = Units on hand x WAUC
WAUC = Total cost of GAS/
Total units available for sale
Measurement
Measurement of
of inventories
inventories
Inventories are required to be
stated at the lower of cost and
net realizable value (NRV).
What
What is
is net
net realizable
realizable value
value
(NRV)?
(NRV)?
Net realizable value is the
estimated selling price in the
ordinary course of business less
the estimated costs of
completion and the estimated
costs necessary to make the sale.
NRV = ESP ECTC - ECTS
Purchase
Purchase Commitment
Commitment
This purchase commitment is an
executory contract. It is not
recognized in the financial
statements unless it is an
onerous contract.
Inventory
Inventory Estimation
Estimation
Techniques
Techniques
- Gross profit rate
- Retail inventory
- Standard cost
GPR Method
COS
COS Formula
Formula (Trading)
(Trading)
Inventory, beginning
Purchases, net
TGAS
xx
Inventory, ending
Cost of sales
P
xx
xx
(
xx
TGAS
P xx
Cost of sales
( xx)
Estimated inventory
P xx
xx)
COS Computation
GPR based on SALES
COS = Net Sales x Cost Ratio
Cost ratio = 1 - GPR
GPR based on COST
COS = Net Sales / (1+GPR)
Markdown
Beg. Invty.
Method
EI at retail
= GAS@retail
Conventional Exclude
Include
Sales (+/- other invty adj.)
Average
Include
Include
(Deduct)
EI at cost = EI at retail x cost ratio
FIFO
Include
Exclude
(Deduct)
Methods:
- Conventional/Conservative/LCM
- Average
- FIFO
STQ Answers
1.
2.
3.
4.
5.
A
C
A
B
B
STQ Answers
6.
7.
8.
9.
10.
B
D
D
D
D
STQ Answers
11.
12.
13.
14.
15.
C
D
D
B
D
STQ Answers
16.
17.
18.
19.
20.
B
A
A
D
C
STQ Answers
21.
22.
23.
24.
25.
D
B
B
C
D
STQ Answers
26.
27.
28.
29.
30.
B
D
D
C
D
end of ToA.203