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21 Cards in this Set
- Front
- Back
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Types of inventories held for re-sale (4) |
retail inventory raw materials inventory WIP inventory Finished goods inventory |
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Goods in transit (FOB) |
shipping point - title passes when seller gives goods to common carrier. Buyer records "freight in" as cost of inventory
destination - title passes to buyer only upon delivery. until then it stays in seller's inventory and "freight out" is a selling expense
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Shipment of non-conforming goods |
title reverts to seller upon rejection of buyer include items in seller's inventory |
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Sales with a Right to Return |
GR: if cannot be estimated how much will be return then consider it as a NO SALE YET, still included with seller's inventory
If the amount can be estimated - record sale with allowance for estimated returns |
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Valuation of Precious Metals and Farm Products |
Net Realizable Value = net selling price - cost of disposal
*departure from cost |
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Inventory Valuation (GAAP) |
Lower of Cost or Market
"Market" = current replacement cost to purchase/reproduce provided it does not exceed NRV (ceiling) or fall below Market ceiling-Profit Margin (Floor)
*departure from cost |
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Write downs of Inventory (GAAP) |
recognized in COGS for the period occurred unless the amount is material - separate line item
Dr. Inventory loss due to decline in market value Cr. Inventory |
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Reversal of Inventory Write-downs is
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PROHIBITED by GAAP
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Net Realizable Value (GAAP and IFRS inventory) |
NRV=net selling price - cost to complete and dispose
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Inventory Valuation (IFRS) and write-downs |
Lower of Cost and NRV
Write-downs can be reversed limited to the amount of the original write-down. reduces COGS |
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Periodic Inventory System |
Requires the physical count of ending inventory. COGS is recognized after "plugging" it in AT THE END OF PERIOD ONLY.
Beginning balance + Purchases (net or returns and discounts) = Cost of goods available for sale - Ending Inventory (physical count) =COGS
*disadvantage, if ending inventory is no correctly counted COGS and thus GP is also going to be misstated |
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Perpetual Inventory system |
Inventory record for each item is updated constantly when each purchase/sale occurs Actual COGS is recorded. |
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Inventory Cost Flow Assumptions |
FIFO LIFO (PROHIBITED by IFRS) Average Cost Specific Identification (preferred by IFRS) |
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In periods of rising prices FIFO method results in |
highest ending inventory (most close to current replacement costs) lowest COGS highest NI
i.e. current costs are not matched with current revenues *ending inventory and COGS will be the same regardless of periodic or perpetual inventory system |
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Specific identification method |
good for unique, high value, large items |
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Weighted average method |
goods for homogenous and a periodic system
average unit cost=total costs of inventory available/total number of units of inventory avaiable
computed at the end of period, used with periodic |
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Moving average method |
computes weighted average cost after each purchase
used with perpetual inventory system
*in periods of rising prices will result in higher ending inventory and lower COGS than Weighted-average method |
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In period of rising prices, LIFO results in |
lowest ending inventory, highest COGS, lowest net income
LIFO means LOWEST -> reduces taxable income
*PROHIBITED method under IFRS * use the same method for tax and FS purposes=LIFO conformity rule *but better matches R & E because costs equate current prices *LIFO periodic does not equal LIFO perpetual |
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Dollar Value LIFO |
inventory is measured in dollars and adjusted for changing price levels. Needs price index
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Price Index internally generated |
Ending inventory at current year cost/ ending inventory at base year cost |
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Firm purchase commitments (think output contracts) loss JE |
Estimated loss on purchase commitment Estimated liability on purchase commitment |
