1.

INTRODUCTION

As students who are taking the Fundamental of Accounting, we are assigned to complete this assignment from Week 2 to Week 5. Our research covers the following aspects: Types of inventories for the company Process of manufacturing the goods Find out which inventories valuation method is used by the company Find out the amount of closing inventories as reported in the financial statement

Throughout the assignment, we are able to expand our knowledge on the inventories valuation system used by the Southern Steel Berhad.. For example, we can know which method among FIFO and Weighted Average that will be used by the company. Furthermore, we are also able to calculate the gross profit or loss by using inventories valuation method.

Next, we are able to find out what types of inventories that the company manufacture. Example of the product that being use for this assignment is steel product. Besides, we can also know the process of manufacturing the goods from raw materials to finished goods. For example, steel are being made into a steel pipe. We will also find out the amount of closing inventories as reported in the financial statement that are important for further analysis of the growth of company business. In short, by completing this assignment, we will have a picture on how the company value their inventories and the process of manufacturing their goods.

2. CONTENT 2.1 Types of Inventories

R. Narayanaswamy (2011, p.263) states that inventories is the non-monetary current asset of a business. Bhattacharyya (2007, p.276) argues that inventories included: (i) (ii) (iii) (iv) Raw Material Work In Progress Finished Goods Consumable products and loose tool Southern Steel Berhad is an established manufacturer of steel products in Malaysia nowadays. There are 4 types of inventories in a steel product manufacturing business : (i) Raw Material The raw material is purchased from the suppliers in order to produce steel. The raw materials of steel are carbon and iron. Steel is known as an alloy of two metals, which are carbon and iron. Hence the material that is needed to produce steel is carbon and iron. (ii) Work in progress - Work in progress is known as the work that has not yet been completed but has already been considered as capital investment according to Melik (2007, p.189). After the heating treatment, steel bar is formed. Steel bar as the work in progress is further processed to manufacture the steel products. (iii) Finished good According to Southern Steel Berhad (2013), the company undergo the In Line Galvanizing Process and the final steel industrial products are produced by the steel bar. The products are billet, carbon steel pipe,cold rolled steel pipe and etc. (iv) Consumable good The consumable good of the company include lubricant which is needed to lubricant the machineries so that the machineries are in good conditions.

2.2 Process of Manufacturing Goods

There are studies from Smith, William F, Hashemi, Javad (2006, p.361) states that iron must be smelted from the ore. The contain of carbon is high in the iron ore, hence it must be melted and reprocess to reduce the amount carbon to the level which the other element can be added. The liquid is then cast into ingots. The ingots then heated and undergo final rolling to form steel metal. After the steel metal is formed, it is then further process to produce the finished goods such as billet and carbon steel pipe. The process is known as In Line Galvanizing Process. The steel coil undergo cleaning and roll forming. K.Bugayev,Y.Konovalov,E.Tretyakov,Y.Bychkov, V.Kovalenko(2001,p.43) say that the steel strip then go through welding, interior coating, tube cleaning, tube heating. Next the, steel metal undergo In Line Hot- Dip Galvanizing process to form pipe. The pipe is then coated with carbon layer and lastly cut into different length.

2.3 Inventories Valuation Methods

There are 2 methods to evaluate the inventories, which are First-In-First-Out (FIFO) method and Weighted Average Method. According to the Annual Report by Southern Steel Berhad (2013, p.64), the cost of inventories are measured based on the weighted average formula. Based on Hansen, Mowen, Guan (p.181), this method merges the previous cost with current cost by adding the manufacturing cost in beginning work in process to the production cost in the current period. The inventories also valued at lower of cost and net realizable value. The report by Southern Steel Berhad (2013,p.64) also states that the expenditure incurred for acquiring inventories, cost throughout the production and the cost of transportation to bring the inventories to the location are also included in the cost of inventories. What is net realizable value? Net realizable value is the estimated selling price of business product less estimated cost of completion and necessary to make the sales according to K.Gupta (2005, p.318).

Naseem Ahmed (2008, p.138) argues that perpetual inventory method involves continuation and systematic recording of increase or decreasing of raw material, work in process and finished goods on day-to-day basis. On the other hand, under the periodic inventory method, the merchandise inventory account is adjusted to the end of physical inventory count in the closing process. It is not kept up to date of purchase. This statement is mentioned by Warren Reeve, Duchac (2012, p.281).

According to Frank Wood, Alan Sangster (2008, p.342) , First in first (FIFO) method is the oldest item in the inventories are consumed or sold first, so closing inventories represent the latest or most recent purchases. Under the FIFO inventories valuation method, the first purchased inventory is first to be sold. During inflation, the higher priced inventories (most recent purchases) will appear in the Statement of Financial Position as closing inventories and the lower priced inventories (earlier purchases) will be included in the Statement of Profit and Loss as cost of sales. Therefore, cost of sales will be understated and closing inventories reflect the latest market price.

Weighted average cost (WAC) method requires the combination of the unit cost of inventories by totaling the cost of existing inventories and the cost of new inventories purchased, then divided bu the total units of inventories held after the new purchase. Under the WAC method, the sold goods are based on the weighted average of all purchases. During inflation, the most recent purchases (higher priced inventories) are also included the weighted average cost, therefore, resulting in a higher cost of sales figure in Statement of Profit and Loss. The earlier purchases (lower priced inventories) are still included in the weighted average closing inventories, resulting in lower closing inventories in the Statement of Financial Position. The business enterprise will have to choose between FIFO and WAC methods, on the basis which method is the closest to the nature of the business operations. The overriding consideration is the need to give a true and fair view of the profitability of the business enterprise over the reporting period and the position of assets, liabilities and equity as at the reporting date. However, what constitutes true and fair view is not precisely defined and it rests with the judgement of the decision-makers. The choice of method may also be determined by other factors, such as ease of recording or calculation, compatibility with the computerised

inventories control system, commonly-used method by other business in the same trade or industry. According to the annual report (page 64) , Weighted Average Cost (WAC) method has been used to value the inventories.

2.4 Value of Closing Inventories In order to find out the amount of closing inventories at the end of accounting period, we can refer to the Statement of Financial Position of the company. According to the annual report (page 47), the amount of closing inventories as reported in The Financial Statement as at 30 June 2013 is RM 611,828,000 .00 .

3. CONCLUSION

As a summarization, we as a students who taking Diploma in Business Studies (Accounting) have completed our assignment in the given time. Throughout Week 2 to Week 5, we were asked to do a research based on the following aspects : Types of inventories for the company Process of manufacturing the goods Find out which inventories valuation method is used by the company Find out the amount of closing inventories as reported in the financial statement

Hence, by completing the assignment, we as an accounting students are able to understand further more about the inventories process, valuation and recording from a company. This will be a great advantage for us in the future as we are well-prepared by equipping ourselves with the rich knowledge about accounting through the assignment. Besides, we worked as group to complete our assignment. We had several discussion in many different locations in order to enable us to complete our assignment on time. We had been to the College Library and State Library for discussion and looking for information in different relevant resources. We have the ability to work efficiently as a team which is an important key for us to be successful in the future. Last but not least, we are able to develop our communication skill by doing the assignment, we gave our own opinion throughout the discussion and were able to tolerate with each other when were having different opinion. Communication skill is absolutely important for our career in the future no matter were trying to communicate with colleagues or customers. In short, we gained many benefits and advantages by doing this assignment that will definitely contribute a lot in our future.