pptchapter8

pptchapter8 - Valuation of Inventories: A Cost Basis...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Slide 8-1 UCSB, Anderson Valuation of Inventories: A Cost Basis Approach Chapter Valuation of Inventories: A Cost Basis Approach Classification E r o s Perpetual v. Periodic C t F lo w Slide 8-3 UCSB, Anderson What is Inventory? Asset items held for sale in the ordinary course of business or . .. goods that will be used or consumed in the production of goods to be sold. Generally a significant asset Generally a primary source of revenue Impacts both balance sheet and income statement Slide 8-4 UCSB, Anderson Manufacturing Companies Classification of inventories: z Raw Materials z Work in Progress z Finished Goods
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Slide 8-5 UCSB, Anderson Inventory- the basics Where does inventory go? COS- Therefore Pretty important If inventory is overstated, then what else is impacted? COS is understated (rollforward) Net income AND gross profit are overstated Various ratios impacted Next year it reverses (COS is overstated etc.) It is stated at Lower of Cost or Market (LCM) 8-6 UCSB, Anderson Inventory issues introduced Four basic questions/ issues: 1. What is it? The costs necessary to make the product available for sale, including costs of holding it once completed. 2. Whose is it? It belongs to the party with whom the risks and rewards lie. 3. How many units are there? z Perpetual, OR z Periodic 4. How much did it cost? Can be tricky, because prices change over time and consequently how do you know which unit you sold and how you paid for it. z Specific identification- no “methodology” or assumptions, but costly and perhaps not possible; z Average or weighted average, can be moving average z FIFO (first in first out, aka last in still here) z LIFO (last in first out, aka first in still here) z Can result in some strange results when inventory levels are depleted (called LIFO Liquidation). Consequently the following has been designed to mitigate: z Specific goods pooled LIFO approach z Dollar Value LIFO Slide 8-7 UCSB, Anderson Items to be Included in Inventory Purchase cost Sales with high rates of return Goods in transit Consigned goods Sales with buyback Slide 8-8 UCSB, Anderson Items to be Included in Inventory Purchase cost Sales with high rates of return Goods in transit Consigned goods Sales with buyback Product cost -- z invoice cost, freight in, labor, and other direct production costs (up to time of sale) Period costs -- z selling, general, and administrative z not inventoriable
Background image of page 2
Slide 8-9 UCSB, Anderson Items to be Included in Inventory Purchase cost Sales with high rates of return Goods in transit Consigned goods Sales with buyback When title passes z fob shipping point z fob destination ABC Freight Line Slide 8-10 UCSB, Anderson
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

pptchapter8 - Valuation of Inventories: A Cost Basis...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online