ACIS3115 Chapter 8

ACIS3115 Chapter 8 - 1 Chapter 8 Valuation of I nventor...

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Unformatted text preview: 1 Chapter 8 Valuation of I nventor ies: A Cost-Basis Approach 2 I nventory Classification and Control Physical Goods I ncluded in I nventory Costs I ncluded in I nventory Cost Flow Assumptions LI FO: Special I ssues Classificatio n Contr ol Basic inventor y valuation issues Basis for Selection Goods in tr ansit Consigned goods Special sales agr eements I nventor y er r or s Pr oduct costs Per iod costs Pur chase discounts Specific identificatio n Aver age cost FI FO LI FO LI FO r eser ve LI FO liquidation Dollar -value LI FO Compar ison of LI FO appr oaches Advantages of LI FO Disadvantage s of LI FO Summar y of inventor y valuation methods Valuation of I nventories: Cost-basis Approach 3 I nventory Classification and Control I nventory I tems held for sale or Goods to be used in the production of goods to be sold 4 Classification (1) Type of Business Mer chandiser Mer chandiser One inventory account Purchase goods ready for sale Balance Sheet (in t housands) Current asset s Cash 285,000 $ Mar ket able secur it ies 530,000 Account s r eceivable 149,000 Mer chandise invent or y 777,000 Pr epaids 33,000 Tot al cur r ent asset s 1,774,000 I nvest ment s: I nvesment in ABC bonds 321,657 I nvest ment in UC I nc. 253,980 Not es r eceivable 150,000 Land held f or speculat ion 550,000 Sinking f und 225,000 Pension f und 653,798 5 Type of Business Manufactur er Manufactur er Three accounts Raw materials Work in process Finished goods Balance Sheet (in t housands) Current asset s Cash 285,000 $ Mar ket able secur it ies 530,000 Account s r eceivable 149,000 I nvent or y Raw mat er ials 210,000 Wor k in pr ocess 417,000 Finished goods 150,000 Tot al invent or y 777,000 Pr epaids 33,000 Tot al cur r ent asset s 1,774,000 I nvest ment s: I nvesment in ABC bonds 321,657 Classification (2) 6 Flow of Cost I llustration 8-2 I llustration 8-2 7 Control Two types of systems for maintaining accurate inventory records: Perpetual System Periodic System 8 Perpetual System Continuously tracts changes in the inventory account. Records all purchases and sales of goods directly in the inventory account. Features Purchases of merchandise are debited to I nventory rather than Purchases. Freight-in, purchase returns and allowances, and purchase discounts are recorded in I nventory. Cost of goods sold is debited and I nventory is credited for each sale. Physical count done to verify I nventory balance. The perpetual inventory system provides a continuous record of I nventory and Cost of Goods Sold. 9 Periodic System Determines the quantity of inventory on hand only periodically. Features Purchases of merchandise are debited to Purchases....
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ACIS3115 Chapter 8 - 1 Chapter 8 Valuation of I nventor...

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