Slide

6-1
Slide
6-2
Chapter 6
Inventories
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
Slide
6-3
1. Describe the steps in determining inventory quantities.
2. Explain the accounting for inventories and apply the
inventory cost flow methods.
3. Explain the financial effects of the inventory cost flow
assumptions.
. Explain the lower!of!cost!or!net reali"able value basis of
accounting for inventories.
#. Indicate the effects of inventory errors on the financial
statements.
$. %ompute and interpret the inventory turnover ratio.
Study Objectives
Study Objectives
Study Objectives
Study Objectives
Slide
6-4
Statement Statement
Presentation Presentation
and Analysis and Analysis
Statement Statement
Presentation Presentation
and Analysis and Analysis
Inventories
Inventories
Inventories
Inventories
&a'ing a &a'ing a
physical physical
inventory inventory
Determining Determining
ownership of ownership of
goods goods
Classifying Classifying
Inventory Inventory
Classifying Classifying
Inventory Inventory
Determining Determining
Inventory Inventory
Quantities Quantities
Determining Determining
Inventory Inventory
Quantities Quantities
Inventory Inventory
Costing Costing
Inventory Inventory
Costing Costing
Inventory Inventory
Errors Errors
Inventory Inventory
Errors Errors
(inished (inished
goods goods
)or' in )or' in
process process
*aw materials *aw materials
+pecific +pecific
identification identification
%ost flow %ost flow
assumptions assumptions
(inancial (inancial
statement and statement and
tax effects tax effects
%onsistent use %onsistent use
,ower!of!cost! ,ower!of!cost!
or!net or!net
reali"able value reali"able value
Income Income
statement statement
effects effects
+tatement of +tatement of
financial financial
position position
effects effects
-resentation -resentation
.nalysis using .nalysis using
inventory inventory
turnover turnover
Slide
6-
Classifying Inventory
Classifying Inventory
Classifying Inventory
Classifying Inventory
/ne %lassification0
1erchandise Inventory
&hree %lassifications0
*aw 1aterials
)or' in -rocess
(inished 2oods
!er"#andising
Com$any
!anufa"turing
Com$any
*egardless of the classification3 companies report all inventories
under %urrent .ssets on the statement of financial position.
Slide
6-6
.nswer on notes page
Slide
6-%
-hysical Inventory ta'en for two reasons0
Per$etual System
1. %hec' accuracy of inventory records.
2. Determine amount of inventory lost 4wasted raw materials3
shoplifting3 or employee theft5.
Periodi" System
1. Determine the inventory on hand
2. Determine the cost of goods sold for the period.
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
Slide
6-&
Involves counting3 weighing3 or measuring each 'ind of
inventory on hand.
&a'en3
when the business is closed or when business is
slow.
at end of the accounting period.
'a(ing a P#ysi"al Inventory
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
Slide
6-)
*oods in 'ransit
-urchased goods not yet received.
+old goods not yet delivered.
Determining +,ners#i$ of *oods
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
2oods in transit should be included in the inventory of the
company that has legal title to the goods. ,egal title is
determined by the terms of sale.
Slide
6-1-
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
Illustration 6-1
/wnership of the goods
passes to the buyer when
the public carrier accepts
the goods from the seller.
/wnership of the goods
remains with the seller until
the goods reach the buyer.
*oods in 'ransit
Slide
6-11
2oods in transit should be included in the inventory of
the buyer when the0
a. public carrier accepts the goods from the seller.
b. goods reach the buyer.
c. terms of sale are (/6 destination.
d. terms of sale are (/6 shipping point.
.evie, Question
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
Slide
6-12
Consigned *oods
In some lines of business3 it is common to hold the
goods of other parties and try to sell the goods for
them for a fee3 but without ta'ing ownership of
goods.
&hese are called "onsigned goods/
Determining +,ners#i$ of *oods
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
Determining Inventory Quantities
SO 1 Describe the steps in determining inventory quantities. SO 1 Describe the steps in determining inventory quantities.
Slide
6-13
0nit "osts "an 1e a$$lied to 2uantities on #and
using t#e follo,ing "osting met#ods3
+pecific Identification
(irst!in3 first!out 4(I(/5
.verage!cost
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Cost 4lo,
Assum$tions
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-14
.n actual $#ysi"al flo, "osting met#od in which items
still in inventory are specifically costed to arrive at the
total cost of the ending inventory.
-ractice is relatively rare.
1ost companies ma'e assumptions 4Cost 4lo,
Assum$tions5 about which units were sold.
S$e"ifi" Identifi"ation !et#od
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-1
Illustration3 .ssume that %rivit" &7 %ompany purchases
three identical $!inch &7s on different dates at costs of
89::3 89#:3 and 8;::. During the year %rivit" sold two sets
at 8132:: each.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Illustration 6-2
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-16
Illustration3 If %rivit" sold the &7s it purchased on (ebruary
3 and 1ay 223 then its cost of goods sold is 813#:: 489::
8;::53 and its ending inventory is 89#:.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Illustration 6-3
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-1%
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Ishi'awa uses a periodic inventory system.
-hysical inventory determined that Ishi'awa sold ##: units and
had #: units in inventory at December 31.
Illustration 6-4
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Cost 4lo, Assum$tions
Slide
6-1&
Earliest goods purchased are first to be sold.
/ften parallels actual physical flow of merchandise.
2enerally good business practice to sell oldest units
first.
54irst-In-4irst-+ut 64I4+78
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-1)
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
54irst-In-4irst-+ut 64I4+78
Illustration 6-
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
.nswer on
notes page
Slide
6-2-
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
54irst-In-4irst-+ut 64I4+78
Illustration 6-
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-21
.llocates cost of goods available for sale on the
basis of ,eig#ted average unit "ost incurred.
.ssumes goods are similar in nature.
.pplies weighted average unit cost to the units on
hand to determine cost of the ending inventory.
5Average-Cost8
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Slide
6-22
5Average Cost8
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Illustration 6-&
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
.nswer on
notes page
Slide
6-23
SO !"plain the accounting for inventories and SO !"plain the accounting for inventories and
apply the inventory cost flo# methods. apply the inventory cost flo# methods.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
5Average Cost8
Illustration 6-&
Slide
6-24
SO $ !"plain the financial effects of the inventory cost flo# assumptions. SO $ !"plain the financial effects of the inventory cost flo# assumptions.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Illustration 6-)
4inan"ial Statement and 'a9 Effe"ts
In"ome
Statement
Effe"ts
Slide
6-2
SO $ !"plain the financial effects of the inventory cost flo# assumptions. SO $ !"plain the financial effects of the inventory cost flo# assumptions.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Statement of 4inan"ial Statement Effe"ts

. ma<or advantage of the (I(/ method is that in a period

of inflation3 the costs allocated to ending inventory will
approximate their current cost.

. shortcoming of the average!cost method is that in a

period of inflation3 the costs allocated to ending inventory
may be understated in terms of current cost.
Slide
6-26
SO $ !"plain the financial effects of the inventory cost flo# assumptions. SO $ !"plain the financial effects of the inventory cost flo# assumptions.
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
'a9 Effe"ts
In a period of inflation0

(I(/ ! inventory and net income higher.

.7E*.2E %ost ! lower income taxes.

Slide
6-2%
In a period of rising prices3 average cost will produce0
a. higher net income than (I(/.
b. the same net income as (I(/.
c. lower net income than (I(/.
d. net income is equal to the specific identification
method.
.evie, Question
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
SO $ !"plain the financial effects of the inventory cost flo# assumptions. SO $ !"plain the financial effects of the inventory cost flo# assumptions.
Slide
6-2&
0sing Cost 4lo, !et#ods Consistently
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
1ethod should be used consistently3 enhances
comparability.
.lthough consistency is preferred3 a company may
change its inventory costing method.
SO $ !"plain the financial effects of the inventory cost flo# assumptions. SO $ !"plain the financial effects of the inventory cost flo# assumptions.
Slide
6-2)
.nswer on notes page
Slide
6-3-
:o,er-of-Cost-or-;et .eali<a1le =alue
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
SO % !"plain the lo#er&of&cost&or&net reali'able SO % !"plain the lo#er&of&cost&or&net reali'able
value basis of accounting for inventories. value basis of accounting for inventories.
)hen the value of inventory is lower than its cost
%ompanies can =write down> the inventory to its net
reali"able value in the period in which the price
decline occurs.
?et reali"able value refers to the net amount that a
company expects to reali"e 4receive5 from the sale of
inventory.
Slide
6-31
Inventory Costing
Inventory Costing
Inventory Costing
Inventory Costing
Illustration3 .ssume that @en &uc'ie &7 has the following
lines of merchandise with costs and mar'et values as
indicated.
Illustration 6-1-
:o,er-of-Cost-or-;et .eali<a1le =alue
SO % !"plain the lo#er&of&cost&or&net reali'able SO % !"plain the lo#er&of&cost&or&net reali'able
value basis of accounting for inventories. value basis of accounting for inventories.
Slide
6-32
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
%ommon %ause0
(ailure to count or price inventory correctly.
?ot properly recogni"ing the transfer of legal title to
goods in transit.
Errors affect both the income statement and
statement of financial position.
Slide
6-33
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
Inventory errors affect the computation of cost of goods
sold and net income.
In"ome Statement Effe"ts
Illustration 6-12
Illustration 6-11
Slide
6-34
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
Inventory errors affect the computation of cost of goods sold
and net income in t,o $eriods.
.n error in ending inventory of the current period will
have a reverse effe"t on net in"ome of t#e ne9t
a""ounting $eriod.
/ver the two years3 the total net income is correct
because the errors offset ea"# ot#er.
&he ending inventory depends entirely on the accuracy
of ta'ing and costing the inventory.
In"ome Statement Effe"ts
Slide
6-3
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
In"orre"t Corre"t In"orre"t Corre"t
Sales &->--- ? &->--- ? )->--- ? )->--- ?
@eginning inventory 2->--- 2->--- 12>--- 1>---
Cost of goods $ur"#ased 4->--- 4->--- 6&>--- 6&>---
Cost of goods availa1le 6->--- 6->--- &->--- &3>---
Ending inventory 12>--- 1>--- 23>--- 23>---
Cost of good sold 4&>--- 4>--- %>--- 6->---
*ross $rofit 32>--- 3>--- 33>--- 3->---
+$erating e9$enses 1->--- 1->--- 2->--- 2->---
;et in"ome 22>--- ? 2>--- ? 13>--- ? 1->--- ?
2-11 2-12
6?3>---7
;et In"ome
understated
?3>---
;et In"ome
overstated
%ombined income for 2!
year period is correct.
Illustration 6-13
Slide
6-36
Anderstating ending inventory will overstate0
a. assets.
b. cost of goods sold.
c. net income.
d. equity.
.evie, Question
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
Slide
6-3%
Inventory !rrors
Inventory !rrors
Inventory !rrors
Inventory !rrors
SO ( Indicate the effects of inventory errors on the financial statements. SO ( Indicate the effects of inventory errors on the financial statements.
Effect of inventory errors on the statement of financial
position is determined by using the accounting equation0
Statement of 4inan"ial Position Effe"ts
Illustration 6-11
Illustration 6-14
Slide
6-3&
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement of 4inan"ial Position ! Inventory classified as
current asset.
In"ome Statement ! %ost of goods sold.
&here also should be disclosure of
15 ma<or inventory classifications3
25 basis of accounting 4cost3 or lower!of!cost!or!net
reali"able value53 and
35 %ost method 4specific identification3 (I(/3 or average!
cost5.
Presentation
Slide
6-3)
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Inventory management is a double!edged sword
1/ Aig# Inventory :evels ! may incur high carrying
costs 4e.g.3 investment3 storage3 insurance3
obsolescence3 and damage5.
2/ :o, Inventory :evels B may lead to stoc'outs and
lost sales.
Analysis 0sing Inventory 'urnover
SO + Compute and interpret the inventory turnover ratio. SO + Compute and interpret the inventory turnover ratio.
Slide
6-4-
Inventory turnover measures the number of times on
average the inventory is sold during the period.
%ost of 2oods +old
.verage Inventory
Inventory
'urnover
C
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Days in inventory measures the average number of
days inventory is held.
Days in Dear 43$#5
Inventory &urnover
Days in
Inventory
C
SO + Compute and interpret the inventory turnover ratio. SO + Compute and interpret the inventory turnover ratio.
Slide
6-41
Days in Inventory3 Inventory turnover of #. times divided into
3$# is approximately 6& days. &his is the approximate time that it
ta'es a company to sell the inventory.
Illustration3 Esprit Eoldings reported in its 2::F annual report a
beginning inventory of E@83319: million3 an ending inventory of
E@823FF9 million3 and cost of goods sold for the year ended Gune
3:3 2::F3 of E@81$3#23 million. &he inventory turnover formula and
computation for Esprit Eoldings are shown below.
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
Statement )resentation and *nalysis
SO + Compute and interpret the inventory turnover ratio. SO + Compute and interpret the inventory turnover ratio.
Illustration 6-16
.nswer on
notes page
Slide
6-42
@ot# *AAP and I4.S $ermit t#e s$e"ifi" identifi"ation met#od
,#ere a$$ro$riate/ I4.S re2uires t#at t#e s$e"ifi" identifi"ation
met#od must 1e used ,#ere t#e inventory items are not
inter"#angea1le 6i/e/> "an 1e s$e"ifi"ally identified7/ If t#e
inventory items are not s$e"ifi"ally identifia1le> a "ost flo,
assum$tion is used/ *AAP does not s$e"ify situations t#at
re2uire its use/
*AAP $ermits t#e use of t#e last-in> first-out 6:I4+7 "ost flo,
assum$tion for inventory valuation/ I4.S $ro#i1its its use/ :I4+
is fre2uently used 1y 0/S/ "om$anies for ta9 $ur$oses/ 0/S/
regulations re2uire t#at if :I4+ is used for ta9es> it must also 1e
used for finan"ial re$orting/ 6See A$$endi9 6C/7
0nderstanding 0/S/ *AAP
0nderstanding 0/S/ *AAP
@ey Differences
@ey Differences
Inventories
Slide
6-43
I4.S re2uires "om$anies to use t#e same "ost flo, assum$tion
for all goods of a similar nature/ *AAP #as no s$e"ifi"
re2uirement in t#is area/
B#en testing to see if t#e value of inventory #as fallen 1elo, its
"ost> I4.S defines mar(et value as net reali<a1le value/ ;et
reali<a1le value is t#e estimated selling $ri"e in t#e ordinary
"ourse of 1usiness> less t#e estimated "osts of "om$letion and
estimated selling e9$enses/ In ot#er ,ords> net reali<a1le value
is t#e 1est estimate of t#e net amounts t#at inventories are
e9$e"ted to reali<e 6re"eive7/ *AAP> on t#e ot#er #and> defines
mar(et as essentially re$la"ement "ost/
0nderstanding 0/S/ *AAP
0nderstanding 0/S/ *AAP
@ey Differences
@ey Differences
Inventories
Slide
6-44
In *AAP> if inventory is ,ritten do,n under t#e lo,er-of-"ost-
or-mar(et valuation> t#e ne, 1asis is no, "onsidered its "ost/
As a result> t#e inventory may not 1e ,ritten 1a"( u$ to its
original "ost in a su1se2uent $eriod/ 0nder I4.S> t#e ,rite-
do,n may 1e reversed in a su1se2uent $eriod u$ to t#e amount
of t#e $revious ,rite-do,n/
Inventories
0nderstanding 0/S/ *AAP
0nderstanding 0/S/ *AAP
@ey Differences
@ey Differences
Slide
6-4
,oo'ing to the (uture
,oo'ing to the (uture
0nderstanding 0/S/ *AAP
0nderstanding 0/S/ *AAP
+ne "onvergen"e issue 1et,een *AAP and I4.S t#at ,ill 1e
diffi"ult to resolve relates to t#e use of t#e :I4+ "ost flo,
assum$tion/ As indi"ated> I4.S s$e"ifi"ally $ro#i1its its use/
Conversely> t#e :I4+ "ost flo, assum$tion is ,idely used in t#e
0nited States 1e"ause of its favora1le ta9 advantages/ In addition>
many argue t#at :I4+> from a finan"ial re$orting $oint of vie,>
$rovides a 1etter mat"#ing of "urrent "osts against revenue and
t#erefore ena1les "om$anies to "om$ute a more realisti" in"ome/
Bit# a ne, "on"e$tual frame,or( no, 1eing develo$ed as t#is
material is ,ritten> it is #ig#ly $ro1a1le t#at t#e use of t#e *AAP
"on"e$t of "onservatism> ,#i"# is t#e 1asis of t#e lo,er-of-"ost-
or-mar(et valuation> ,ill 1e eliminated/ Similarly> t#e "on"e$t of
$ruden"e in t#e IAS@ literature ,ill also 1e eliminated/
Inventories
Slide
6-46
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
SO . *pply the inventory cost flo# methods to perpetual inventory records. SO . *pply the inventory cost flo# methods to perpetual inventory records.
.ssuming the Per$etual Inventory +ystem3 compute %ost of 2oods +old
and Ending Inventory under (I(/ and .verage cost.
.ppendix $. .ppendix $.
Illustration 6A-1
Slide
6-4%
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
SO . *pply the inventory cost flo# methods to perpetual inventory records. SO . *pply the inventory cost flo# methods to perpetual inventory records.
54irst-In-4irst-+ut 64I4+78
Cost of *oods
Sold
Ending Inventory
Illustration 6A-2
.nswer on
notes page
Slide
6-4&
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
Cost ,lo# -ethods in )erpetual Systems
SO . *pply the inventory cost flo# methods to perpetual inventory records. SO . *pply the inventory cost flo# methods to perpetual inventory records.
5
5
Average Cost8
Average Cost8
6!oving-Average System7 6!oving-Average System7
Illustration 6A-3
Cost of *oods
Sold
Ending Inventory
.nswer on
notes page
Slide
6-4)
!stimating Inventories
!stimating Inventories
!stimating Inventories
!stimating Inventories
&he gross $rofit met#od estimates the cost of ending
inventory by applying a gross profit rate to net sales.
*ross Profit !et#od
SO / Describe the t#o methods of estimating inventories. SO / Describe the t#o methods of estimating inventories.
Illustration 6@-1
.ppendix $6 .ppendix $6
Slide
6--
!stimating Inventories
!stimating Inventories
!stimating Inventories
!stimating Inventories
Illustration3 @ishwau'ee %ompanyHs records for Ganuary show net
sales of 82::3:::3 beginning inventory 8:3:::3 and cost of goods
purchased 812:3:::. &he company expects to earn a 3:I gross
profit rate. %ompute the estimated cost of the ending inventory at
Ganuary 31 under the gross profit method.
SO / Describe the t#o methods of estimating inventories. SO / Describe the t#o methods of estimating inventories.
Illustration 6@-2
Slide
6-1
!stimating Inventories
!stimating Inventories
!stimating Inventories
!stimating Inventories
%ompany applies the cost!to!retail percentage to ending
inventory at retail prices to determine inventory at cost.
.etail Inventory !et#od
SO / Describe the t#o methods of estimating inventories. SO / Describe the t#o methods of estimating inventories.
Illustration 6@-3
Slide
6-2
!stimating Inventories
!stimating Inventories
!stimating Inventories
!stimating Inventories
SO / Describe the t#o methods of estimating inventories. SO / Describe the t#o methods of estimating inventories.
?ote that it is not necessary to ta'e a physical inventory to determine
the estimated cost of goods on hand at any given time.
Illustration 6@-4
Illustration3
Slide
6-3
:atest goods purchased are first to be sold.
+eldom coincides with actual physical flow of
merchandise.
Exceptions include goods stored in piles3 such as
coal or hay.
Ander I(*+3 ,I(/ is not permitted for financial
reporting purposes.
5:ast-In-4irst-+ut 6:I4+78
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
SO 1 *pply the 0I,O inventory costing method. SO 1 *pply the 0I,O inventory costing method.
.ppendix $% .ppendix $%
Slide
6-4
Ishi'awa uses a periodic inventory system.
-hysical inventory determined that Ishi'awa sold ##: units and
had #: units in inventory at December 31.
Illustration 6-4
Illustration
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
SO 1 *pply the 0I,O inventory costing method. SO 1 *pply the 0I,O inventory costing method.
Slide
6-
5:ast-In-4irst-+ut 6:I4+78 Illustration 6C-1
+olution on
notes page
SO 1 *pply the 0I,O inventory costing method. SO 1 *pply the 0I,O inventory costing method.
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
Slide
6-6
Illustration 6C-1
5:ast-In-4irst-+ut 6:I4+78
SO 1 *pply the 0I,O inventory costing method. SO 1 *pply the 0I,O inventory costing method.
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
0I,O Inventory -ethod
Slide
6-%
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