Class 6.2 Slides_Inv Estimation_Student (1).pptx

Class 6.2 Slides_Inv Estimation_Student (1).pptx - BUS-A310...

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BUS-A310 Unit 2: Balance Sheet - Assets
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CLASS 6.2 Chapter 9: Inventories – Additional Issues
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LEARNING OBJECTIVE At the end of this lesson, you should be able to: Apply the rules used by accountants to measure the value of ending inventory [CO5a] 3
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GROSS PROFIT METHOD
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GROSS PROFIT METHOD The gross profit method , also known as the gross margin method , is useful in situations where estimates of inventory are desirable: 1. In determining cost of inventory that has been lost, destroyed, or stolen 2. In estimating inventory and cost of goods sold for interim reports, avoiding the expense of a physical inventory count 3. In auditors’ testing of the overall reasonableness of inventory amounts reported by clients 4. In budgeting and forecasting 5
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GROSS PROFIT METHOD 6 * Cost of goods sold can also be calculated as: $2,000,000 × (1 − 0.40) = $1,200,000 Beginning inventory (from records) Plus: Net purchases (from records) Goods available for sale Less: Cost of goods sold: Net sales Less: Estimated gross profit of 40% Estimated cost of goods sold* Estimated ending inventory $ 600,000 1,500,000 2,100,000 $2,000,000 (800,000) (1,200,000) $ 900,000
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YOUR TURN 7 The records of Oregon Timber, Inc., revealed the following information related to inventory destroyed in a fire: Inventory, beginning of period $ 900,000 Purchases to date of fire 480,000 Net sales to date of fire 1,350,000
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