Lecture 18 (1).ppt - Inventory Valuation Issues in...

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Inventory Valuation
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Issues in Reporting Inventory Reporting Inventory at balance sheet date i.e. at the end of accounting period involves - Classification of Inventory Determination of Ending Inventory amount and hence COGS for the period Determining Inventory Quantities Taking Physical Inventory Count Determining Ownership of Goods comprising Inventory Determining Inventory Cost Using Specific Identification Method Using Cost Flow Assumption Method
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Classification of Inventory For Merchandising Company - Merchandising Inventory (owned by company and exists in a form ready for sale to customers in ordinary course of doing business) For Manufacturing Company – based on degree of completeness Finished Goods – manufactured items that are complete and ready for sale to customers Work In Process or Work In Progress (WIP) – manufactured items that have begun production process but are not yet complete Raw Materials – basic goods that will be used in production but have not yet been placed into production Some companies follow Just – In – Time (JIT) inventory method to manufacture or purchase goods just in time for use thereby minimizing inventory levels and cost
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Determining Inventory Quantities Taking Physical Inventory Count Involves counting, weighing and measuring each kind of inventory on hand Easier for fewer variety of inventory items and is done when business closes or is slow and limited number of inventory items are being sold or received Determining Ownership of Goods Only those items of inventory are included in the count which are owned by the company
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Determining Ownership of Goods (contd..) Goods In Transit on board a ship, plane, train, or truck at the end
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