ACTG 2010 - 2013W - Week 11 (Ch.7 - part 2)

ACTG 2010 - 2013W - Week 11 (Ch.7 - part 2) - Intro to...

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Intro. to Financial Accounting II ACTG 2010 S Winter 2013 Week 11
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Administrative Matters Case assignment – hand in please Turnitin submission – one per pair 2
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Agenda Finish Chapter 7 – Inventory Practice case – Daphne’s Catering 3
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Review - Inventory – What Is It? 4
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Review - Inventory – What Is It? Products sold to earn revenue Goods used to manufacture products that are sold to earn revenue Products used in providing a service to earn revenue 5
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Review - Inventory You are a retailer (i.e. Future Shop) What costs do you include in inventory? 6
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Review - Inventory You are a retailer (i.e. Future Shop) What costs do you include in inventory? Purchase price Shipping, customs, duties Any other costs necessary to get the products into a store to be sold 7
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Review Inventory for a Manufacturer 3 “categories” of inventory for a manufacturer? 8
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Review Inventory for a Manufacturer 3 “categories” of inventory for a manufacturer: Raw materials Work in process (“WIP”) Finished goods Consider: Tridel Corporation (home builder) 9
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Review Manufacturing Inventory What costs should be included in inventory for a manufacturer? 10
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Review Manufacturing Inventory IFRS states: All production costs to be included in the cost of inventory i.e. direct labour, materials, allocation of overhead Costs not related to producing inventory & readying it for sale should be excluded i.e. administration, marketing/commissions, etc. 11
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Professional Services Inventory WIP is a form of “inventory” for accountants, lawyers, etc. Book “time” as work is being completed Dr. WIP, Cr. Revenue Bill client once work is finished Dr. A/R, Cr. WIP 12
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Inventory - Activities A business can essentially perform one of the following three activities with inventory: Buy (or manufacture) it – LAST WEEK Hold it Sell it There are accounting rules associated with each of these three activities 13
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Holding Inventory IFRS states: inventory should be valued at the lower of: Cost – i.e. what you originally paid to purchase/manufacture the inventory Market value This is known as the “LCM” rule 14
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