Lecture 5 - Assets Flashcards
What is the definition of assets?
Resources controlled by entities as a result of PAST EVENTS and from which FUTURE ECONOMIC BENEFITS are expected to flow.
What is the recognition criteria for assets?
1) PROBABLE that economic benefit will eventuate
2) Asset possesses a cost/value that can be measured reliably
What is the measurement criteria for Accounts Receivable?
The minimum of cost and Net Realisable Value
What is Net Realisable value for Accounts Receivable?
Accounts Rec - allowance for doubtful debts
What is a contingent asset?
A POSSIBLE ASSET that arises from PAST EVENTS but will exist ONLY IF ONE OR MORE UNCERTAIN FUTURE EVENTS OCCUR.
Are contingent assets recognised in the financial statement? IF NOT WHY NOT? (when is it disclosed and the when is it recognised)
No, they re assessed until inflow of benefit is PROBABLE and then are DISCLOSED.
Then when inflow is VIRTUALLY CERTAIN it is RECOGNISED.
What is the definition of Inventory? (3 forms)
Assets HELD FOR SALE, in the PROCESS OF PRODUCTION or in the form of MATERIALS TO BE CONSUMED.
How is Inventory measured? What is NRV? What is Cost?
Min(Cost, NRV)
Cost = Purchase cost + conversion cost + other costs
NRV = Proceeds - further costs to complete - marketing selling and distribution costs
What is Purchase cost as it regards Inventory? (formula)
Purchase cost = Purchase price + Import Duties and other taxes + transport and other handling costs + other direct costs of acquisition - trade discounts
What is Conversion cost as it regards Inventory? (formula)
Conversion Cost = Direct production costs + Indirect production costs + Direct Labour costs + Fixed Overheads + Variable Overheads
What is the Cost Of Goods Sold?
COGS = GAFS - Ending Inventory
Such that GAFS (Goods Available For Sale) = Beginning Inventory + Purchases
Describe the Perpetual Inventory system. (5 key points)
1) Current and continuous update for inventory movements through inventory accounts
2) Items are tracked individually
3) COGS ACCOUNT MAINTAINED
4) Need a stock count to determine stock losses
5) Costly for a manual system but less so for computerised system
Describe the Periodic Inventory System. (5 Points + COGS for Periodic system
1) NO permanent record of inventory movements through inventory account
2) Physical count needed to determine amount of inventory at period end
3) Tough to determine stock losses
4) Purchases account used
5) NO COGS ACCOUNT DURING YEAR
COGS = change in COGS (opening - closing) + COGS available for sale
What happens when Inventory is PURCHASED in the Perpetual Method? (include journal entries)
It is treated as an asset.
Dr Inventory Account
Cr Accounts Payable
What happens when Inventory is SOLD in the Perpetual Method? (include journal entries)
Dr COGS (expense increasing) Cr Inventory account credited (asset decreasing)
