6-‹#›

FIFO -
Cornhuan cao -> taxn
thereit:Wie
Music

Lecture 6 handout
-> gia' mua ve
The SOGS

Example 1: FIFO – Lin electronics 200 11,000 fine

gianhap
35 x
sales Revenue =
=

vii c55sp
Jan 1: beginning inventory - 10 units at $100 Sep 10: sell 55 units for $200
Apr 15: purchase 20 units at $110 Nov 27: purchase 40 units at $130
Aug 24: purchase 30 units at $120 Gross Profit 11,000
=
-
6,200 4,800 =

mula barn, air Purchases Sales Balances

ki
Giamua
Date Details Total Unit Total Unit Total
Qty Unit cost Qty Qty
cost cost cost cost cost
Jan 1 Balance 10 100 100

10 100 1000 2200

+

Apr15 Purchase 20 110 2200

20
I

110 3200
10 100

Ang24 Purchase
20
30 1203600
110

30 128 6808

i
10

Sept Sell 20
25 120
O6200 5

j
120

120
600

er
ending
Nov 27 Purchase 40 130 5200
! inventory

↓
5808
48 7

130 ↓

Financial Position
Example 2: FIFO – Tinker Bell Company COGS - BS
Jan 1: Beginning inventory – 8,000 units at $11 Nov 8: Purchase 5,000 units at $13
June 19: Purchase 13,000 units at $12 Dec 12: sell 1,000 units for $20
Sep 10: Sell 11,000 units for $20

Purchases Sales Balances

Date Details Total Unit Total Unit Total
Qty Unit cost Qty Qty
cost cost cost cost cost
 Sale Rev 55x200
= 11000
=

COGS 55 x
=
113 6215
=

Gross Pr= 4785

Example 3: WAC – Lin Electronics
Jan 1: beginning inventory - 10 units at $100 Sep 10: sell 55 units for $200
Apr 15: purchase 20 units at $110 Nov 27: purchase 40 units at $130
Aug 24: purchase 30 units at $120

-
Purchases Sales Balances
Date Details Total Unit Total Unit Total
Qty Unit cost Qty Qty
cost cost cost cost cost
Jan 1 Balance
-no 100 IVO

Apr 15 Purchase 20 110 2200

L
30 106,67 3,200

Ang 24 purchase 30 120 3500 60 113,35 6,800

- (-)

Sep 10 sale 55 113,336233, 15 5 113,33566,85

Nor 27 Purchase

Example 4: WAC – Tinker Bell Company

Jan 1: Beginning inventory – 8,000 units at $11 Nov 8: Purchase 5,000 units at $13
June 19: Purchase 13,000 units at $12 Dec 12: sell 1,000 units for $20
Sep 10: Sell 11,000 units for $20

Purchases Sales Balances

Date Details Total Unit Total Unit Total
Qty Unit cost Qty Qty
cost cost cost cost cost
 Chapter 6 Inventories
Learning Objectives
After studying this chapter, you should be able to:

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.

4. Explain the lower-of-cost-or-net realizable value basis of accounting

for inventories.

6-‹#›
 Preview of Chapter 6
Quantity
- cost(gia
mua)

Loading…

Financial Accounting
IFRS Second Edition
Weygandt Kimmel Kieso
6-‹#›
 Classifying Inventory

Merchandising Manufacturing
Company Company

One Classification: Three Classifications:

● Inventory ● Raw Materials

● Work in Process
● Finished Goods

Regardless of the classification, companies report all inventories under

Current Assets on the Statement of Financial Position.

6-‹#›
 Determining Inventory Quantities
who
For
linh SL
hang
Physical Inventory taken for two reasons:
steintheson.Saiyan-Thing law the it
aid

Perpetual System
1. Check accuracy of inventory records. litrer hang tree maytinh co'khop
so
vs
so'harg kho?
Book (tren may)
physical cothe tech when adjust
-
-
-

2.
Loading…
Determine amount of inventory lost (wasted raw materials,
shoplifting, or employee theft).

Periodic System
I'duing book stein the only
ate - -

3. Determine the inventory on hand.

4. Determine the cost of goods sold for the period.

6-‹#› LO 1 Describe the steps in determining inventory quantities.

 Determining Inventory Quantities
2
steps HangviaminternetI)Whocameminer, inthe
mint
I via I
no
thing

1. Taking a physical 2. Determining the

inventory ownership of goods

count
goods consigned
Inventory in in t
goods
the warehouse
transit

feeler chandise)is
-

Fob destination
6-‹#›
For shipping point
LO 1 Describe the steps in determining inventory quantities.
 Determining Inventory Quantities

Taking a Physical Inventory

Involves counting, weighing, or measuring each kind of
inventory on hand.

Taken,

● when the business is closed or business is slow.

● at end of the accounting period.

6-‹#› LO 1 Describe the steps in determining inventory quantities.

 Determining Inventory Quantities

Determining Ownership of Goods

Goods in Transit
mine
● Purchased goods not yet received. mua no, stang charger ten
htar or bail
● Sold goods not yet delivered. chargerco

Goods in transit should be included in the inventory of the company

that has legal title to the goods. Legal title is determined by the
terms of sale. I FOB destination
-

FOB
stripping point

6-‹#› LO 1 Describe the steps in determining inventory quantities.

 Determining Inventory Quantities

Goods in Transit Illustration 6-1

Terms of sale

Ownership of the goods

passes to the buyer when the
public carrier accepts the
goods from the seller.

Ownership of the goods

remains with the seller until the
goods reach the buyer.

6-‹#› LO 1 Describe the steps in determining inventory quantities.

 Determining Inventory Quantities

Determining Ownership of Goods

Consigned Goods
● Goods held for sale by one party.

● Ownership of the goods is retained by another party.

gnert -> Inee

owner sell
0=

Physical inventory +

GIT
+

consigned
goods
6-‹#› LO 1 Describe the steps in determining inventory quantities.
 Determining Inventory Quantities

1. Taking a physical inventory 2. Determining the ownership of

goods

Loading…

6-‹#› LO 1 Describe the steps in determining inventory quantities.

 Inventory Costing

After a company has determined the quantity of units of

inventory, it applies unit costs to the quantities to compute the
total cost of inventory and Cost of goods sold

Purchases
Feb 1TV @ $700
Mar 1TV @ $700
May 1TV @ $700
Sales
June 2TVs for $2,400
COGS = ?

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing

After a company has determined the quantity of units of

inventory, it applies unit costs to the quantities to compute the
total cost of inventory and Cost of goods sold
Illustration 6-2

sales ver

I
Sales 2x1200 2400

Assume ban 1,2

=
rew=

1x 700 + 1x750 = 1458

COGS =

2400 1450 958

Gross profit
- =

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing

Unit costs can be applied to quantities on hand using the

3
following costing methods:
choking spaia lohing/AD
doanh withinga
ughiep so
● Specific Identification chint had
xat cost

inthere E
DN
● First-in, first-out (FIFO)
trou
whip this, bain Cost Flow
● Average-cost Assumptions
trung
tinh bint his gia' - ban

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
Specific Identification
If Crivitz sold the TVs it purchased on February 3 and May 22, then its
cost of goods sold is £1,500 (£700 + £800), and its ending inventory is
£750.
Illustration 6-3

6-‹#›
 Inventory Costing

Specific Identification
Actual physical flow costing method in which items still in
inventory are specifically costed to arrive at the total cost of
the ending inventory.

● Practice is relatively rare.

● Most companies make assumptions (Cost Flow

Assumptions) about which units were sold.

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing

There are two assumed cost flow methods:

1. First-in, first-out (FIFO)

2. Average-cost

Cost flow does not need be consistent with the physical

movement of the goods.

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing

● Illustration : Data for Lin Electronics

Lin
Date Electronics
Explanatio Units Unit cost
Jan. n
Beginning 10 100
1Apr. 15 inventory
Purchase 20 110
Aug. Purchase 30 120
24
Sep. Sal 55 ?
10 27
Nov. Purchase e 40 130

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing System

Perpetual inventory system Periodic inventory system

6-‹#›
 Inventory Costing System

Perpetual inventory system Periodic inventory system

6-‹#›
 Inventory Costing

First-In-First-Out (FIFO)
● Earliest goods purchased are first to be sold
● Cost of the first item purchased is assigned to the first items sold.

● Ending inventory cost is determined from the prices of the most recent
purchases

● Often parallels actual physical flow of merchandise.

● Generally good business practice to sell oldest units first.

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
FIFO under perpetual inventory system
● Company determines cost of goods sold each time a
sale occurs.

● Example 1 : Data for Lin Electronics’ - FIFO

Lin
Date Electronics
Explanatio Units Unit cost
Jan. n
Beginning 10 100
1
Apr. 15 inventory
Purchase 20 110
Aug. Purchase 30 120
24
Sep. Sal 55 ?
10 27
Nov. Purchase e 40 130

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
FIFO under perpetual inventory system
● Company determines cost of goods sold each time a
sale occurs.

● Example 2 : Tinker Bell Company - FIFO

● Jan 1: Beginning inventory – 8,000 units at $11

● June 19: Purchase 13,000 units at $12

● Sep 10: Sell 11,000 units for $20

● Nov 8: Purchase 5,000 units at $13

● Dec 12: sell 1,000 units for $20

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing

Average Cost under perpetual inventory system

● Average cost is determined by dividing the cost of

goods available for sale by the number of units
available cumulative weighted average

● a new average cost per unit after each purchase is

computed.

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
Average Cost under perpetual inventory system
● a new average cost per unit after each purchase is
computed.

● Example 3 : Data for Lin Electronics - WAC

Lin
Date Electronics
Explanatio Units Unit cost
Jan. n
Beginning 10 100
1
Apr. 15 inventory
Purchase 20 110
Aug. Purchase 30 120
24
Sep. Sal 55 ?
10 27
Nov. Purchase e 40 130

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
Average Cost under perpetual inventory system
● a new average cost per unit after each purchase is
computed.

● Example 4 : Tinker Bell Company - WAC

● Jan 1: Beginning inventory – 8,000 units at $11

● June 19: Purchase 13,000 units at $12

● Sep 10: Sell 11,000 units for $20

● Nov 8: Purchase 5,000 units at $13

● Dec 12: sell 1,000 units for $20

6-‹#› LO 2 Explain the basis of accounting for inventories

and apply the inventory cost flow methods.
 Inventory Costing
Financial Statement and Tax Effects under
perpetual inventory system Illustration 6-9

Lin Electronics
Condensed Income Statements

FIFO Average cost

Sales revenue
Cost of goods sold
Gross profit
Operating
expenses
Profit before tax
6-‹#› Income tax (30%)
LO 3 Explain the financial effects of the inventory cost flow assumptions.
 Profit after tax

Inventory Costing

Using Cost Flow Methods Consistently

● Method should be used consistently, enhances
comparability.

● Although consistency is preferred, a company may change

its inventory costing method.

6-‹#› LO 3 Explain the financial effects of the inventory cost flow assumptions.
 Inventory Costing

Lower-of-Cost-or-Net Realizable Value

When the value of inventory is lower than its cost

● Companies must “write down” the inventory to its net

realizable value in the period in which the price decline
occurs. Loading…
● Net realizable value refers to the net amount that a
company expects to realize (receive) from the sale of
inventory (estimated selling price in the normal course of
business, less estimated costs to complete and sell).

LO 4 Explain the lower-of-cost-or-net realizable

6-‹#›
value basis of accounting for inventories.
 Inventory Costing

Lower-of-Cost-or-Net Realizable Value

Illustration: Assume that Gao TV has the following lines of
merchandise with costs and net realizable values as
indicated.
Illustration 6-10

LO 4 Explain the lower-of-cost-or-net realizable

6-‹#›
value basis of accounting for inventories.
 Inventory Costing

Lower-of-Cost-or-Net Realizable Value

Example 5: Tracy company sells 3 types of home heating
stoves. They have the following cost and Net realizable
value:
Cost NRV Inventory
Gas $84,000 $79,000
Wood $250,000 $280,000
Pellet $112,000 $101,000

Total value of inventory = ?

LO 4 Explain the lower-of-cost-or-net realizable

6-‹#›
value basis of accounting for inventories.