Module 10: Inventories Flashcards
Moving Average Method
Used with perpetual records, requires that a new average unit cost be computed each time goods are purchased, and this unit cost is in costing withdrawals of inventory until another purchase is made.
Inventory Turnover
Measures the number of times inventory was sold and reflects inventory order and investment policies.
Cost of Goods Sold / Average Inventory
Dollar Value LIFO
Inventory at base year prices x Conversion price index
Conversion Price Index
EI at end of year prices / EI at base year prices
Weighted Average
Used with periodic records, the seller averages the cost of all items on hand and purchased during the period; The units in ending inventory and units sold (CGS) are costed at this average cost.
Cost of Goods Sold Calculation
Purchases + Beginning Inventory - Ending Inventory
FIFO (First-in, First-out)
An assumption that goods are sold in the chronological order purchased. The ending inventory will consist of the last purchases made during accounting period
LIFO (Last In, First Out)
The las goods purchased are assumed to been sold. The ending inventory consists of goods first purchased.
IFRS Inventory Valuation
Lower of cost or net realizable value (NRV)
In accounting for a long-term construction contract using the percentage-of-completion method, the amount of income recognized in any year would be added to
Dr. Construction in Progress
Cr. Income on long term construction contract
Completed Contract Method, recognition of income
All revenue and expense recognition is deferred until the project is complete or substantially complete (ASC Topic 605).
Calculation for percentage of completion profits
Total Costs Incurred to date/ Total Estimated Cost to Complete x GP (Contract Price - Total estimated Costs to Complete
- Previous Years Profit Recognition
Specific Identification
Individual inventory lots purchased or manufactured are separately identified. When items are sold or otherwise disposed of, the actual cost of the specific item is assigned to the transaction and the ending inventory consists of the actual costs of the specific items on hand. Usually used for high cost items, which are individually identifiable (automobiles, appliances, jewelry, etc.). Manufacturing operations process and sell inventory in the order it is received, that is the first items in are the first to be sold (FIFO).
Double Extension & Link Chain Methods
Two variations of dollar value LIFO. Link chain differs from double extension in that inventory values are extended beginning of the year prices for link chain and at base year prices for double extension. Because of this difference, link chain is more appropriate for situations in which inventory is going through rapid technological changes. The two variations are not alternatives and use of the link chain method should be restricted to situations in which the double extension method is impractical.
Consignor
The individual who owns the goods
