Financial-Accounting-and課件

1、1Financial Accounting and ReportingModule 8: InventoryInstructor: JunCopyright 高才國際教育集團(tuán)2InventoryA: Determining INV & COGS (P184-185)B: Inventory Valuation (P185-190)C: Cost-Flow Method (P185-190)M8D: Ratios (P191)E: Long-Term Construction Contracts (P191-194)- Measurement issue (how much)- classifi

2、cation issue- What to be included3 Determining INV & COGS 4ADetermining Inventory & COGSTypes of Inventories Held for Re-SaleGoods and Materials to be Included in InventoryCost Component of Production InventoryPerpetual System vs. Periodic System5ADetermining Inventory & COGSRetail inventoryRM, WIP,

3、 and FG inventory1. Types of inventories held for re-sale Re-sold in substantially the same form in which it was purchased Raw Material: inventory that is being held for use in the production process Working in process: inventory that is in production but incomplete Finished goods: inventory that co

4、mplete and ready for sale6ADetermining Inventory & COGS2. Goods and Materials to be included in inventorya) G.R. b) Exceptions and Special Applications Goods in transit Shipment of non-conforming goods Sales with a right to return Consigned goods Public warehouses Sales with a mandatory buyback Inst

5、allment salesGoods and materials in which the company has legal title should be included in inventory, and legal title typically follows possession of goods 7ADetermining Inventory & COGS2. Goods and Materials to be included in inventoryc) Goods in Transit If there is explicitly agreement: title pas

6、ses in terms of the agreement If there is no such agreement: title passes when sellers performance regarding delivery of goods is complete F.O.B. (free on board): requires the seller to deliver the goods to the location indicated as F.O.B. the sellers expense.F.O.B shipping point Title passes to buy

7、er when seller delivers goods to a common carrier Goods shipped should be included in the buyers inventory upon shipmentF.O.B destination Title passes to buyer when buyer receives goods from common carrier Goods shipped should be included in the sellers inventory until received by buyer- buyers inve

8、ntory upon shipment- sellers inventory until received by buyer8ADetermining Inventory & COGS2. Goods and Materials to be included in inventoryd) Shipment of Non-Conforming goods The seller ships the wrong goods Title reverts to the seller upon rejection by the buyer Goods should not be included in t

9、he buyers inventory even if the buyer possesses the goods prior to their return to the seller- Sellers inventory upon buyers rejection9ADetermining Inventory & COGS2. Goods and Materials to be included in inventorye) Sales with a Right to Return The goods should be included in the sellers inventory

10、if the amount of the goods likely to be returned cannot be determined If the amount of goods likely to be returned can be estimated, the transaction will be recorded as a sale with an allowance for estimated returns recorded Conditions must be met to be qualified as a sale- Sellers inventory if retu

11、rned amount not determined The sales price is substantially fixed at the date of sale The buyer assumes all risk of loss (goods in buyers possession) The buyer has paid some for considerations The product sold is substantially complete The amount of future returns can be reasonably estimated10ADeter

12、mining Inventory & COGS2. Goods and Materials to be included in inventoryf) Consigned Goods The seller (consignor) delivers goods to an agent (consignee) to hold and sell on the consignors behalf The seller should include the consigned goods in its inventory because title and risk of loss is retaine

13、d by the seller even though the buyer possesses the goods Revenue will be recognized when goods are sold to a 3rd party. Title passes directly to the 3rd party (seller 3rd party)- Sellers inventory until goods sold to a 3rd party11ADetermining Inventory & COGS2. Goods and Materials to be included in

14、 inventoryg) Public Warehouses Goods stored in a public warehouse and evidenced by a warehouse receipt Goods should be included in the company holding the warehouse receipt even though the owner does not have possession.- Belongs to an entity who is holding the warehouse receipt12ADetermining Invent

15、ory & COGS2. Goods and Materials to be included in inventoryh) Sales with a Mandatory Buyback The seller has a requirement to repurchase goods from the buyer The seller should include the goods in inventory even though title has passed to the buyer.- sellers inventory since the seller must buyback t

16、he goods later13ADetermining Inventory & COGS2. Goods and Materials to be included in inventoryi) Installment Sales The seller sells goods on a installment basis but retains legal title as security for the loan The goods should be included in the sellers inventory if the % of uncollectible amounts c

17、annot be estimated. If the uncollectible amount can be estimated, the transaction would be accounted for as a sale, and an allowance for uncollectible amounts would be recorded - sellers inventory if the uncollectible amounts cannot be estimated14ADetermining Inventory & COGS3. Cost Components of Pr

18、oduction InventoryCosts include in inventory are the sum of all expenditures in bringing the goods to the condition and location so that they are ready for sale. Direct Materials (DM) Direct Labor (DL), and Manufacturing Overhead (MOH)c) There are 3 types of product costs:b) Under GAAP, only product

19、 costs are included in inventory while period costs (i.e. not a necessary part of the manufacturing process ) are not included as production inventory15ADetermining Inventory & COGS3. Cost Components of Production Inventory Raw materials that are placed into production and are directly traceable to

20、the item being produced Freight in Insurance Storage Import duties Purchasing/Receiving dept. costsd) Direct Material (DM) Raw materials would be transferred into Work-in-process (WIP) should include:- While freight out is selling EXP16ADetermining Inventory & COGS3. Cost Components of Production In

21、ventorye) Direct Labor (DL) Labor that is directly traceable to the item being produced Indirect labor includes items such as supervision, inspection, and maintenance Indirect materials include items such as fuel, lubricants, and shop supplies Overhead includes items such as depreciation of factory

22、equipment, factory insurance and manufacturing costsf) Manufacturing Overhead (MOH) Includes all indirect costs of production that cannot be directly traced or are uneconomical to trace to the item being produced but are still necessary for production, including:17ADetermining Inventory & COGS3. Cos

23、t Components of Production Inventoryg) Period Costs Non-production costs, including: Freight out Marketing costs Re-handing costs Abnormal spoilage Idle plant costs- Not included in inventory18ADetermining Inventory & COGS4. Periodic System vs. Perpetual Systema) Periodic System The quantity of INV

24、END is determined only by physical count, usually at least annually COGS for the period is determined by squeezing Does not keep a running total of the inventory balancesINV BEG PurchasesCOGAFS(COGS) squeezeINV END physical count- Key difference19ADetermining Inventory & COGS4. Periodic System vs. P

25、erpetual Systemb) Perpetual System Inventory record for each item of inventory is updated for each purchase and each sale as they occur. COGS is determined and recorded with each sale Keeps running total of inventory balances Perpetual with period at year end - Many companies that maintain a perpetu

26、al inventory system still perform either complete periodic physical inventory count or test count inventories on a random basis- Key difference20ADetermining Inventory & COGS4. Periodic System vs. Perpetual Systemc) Comparison of periodic and perpetual inventory methods To record purchase: periodic

27、system:Example: A company purchased 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during the 1st operating yearDr. Purchases $300,000 Cr. Cash or A/P $300,000 perpetual system:Dr. Inventory $300,000 Cr. Cash or A/P $300,00021ADetermining Inventory & COGS4. Periodic System vs

28、. Perpetual Systemc) Comparison of periodic and perpetual inventory methods To record sale periodic system:Dr. Cash $140,000 Cr. Sales $140,000 perpetual system:Dr. Cash $140,000 Cr. Sales $140,000Dr. COGS $120,000 Cr. Inventory $120,000- Same as periodic system- AdditionalExample: A company purchas

29、ed 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during the 1st operating year22ADetermining Inventory & COGS4. Periodic System vs. Perpetual Systemc) Comparison of periodic and perpetual inventory methods End-of-period adjustment periodic system:Dr. COGS $120,000Dr. INV END

30、 180,000 Cr. Purchases $300,000 perpetual system:No entry needed- adjusts inventory to the physical count, closes out any purchase accounts, and runs any difference through cost of goods sold. Example: A company purchased 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during

31、the 1st operating year23Question Time1. The following info applied to Fenn, Inc. for 2008:$400,000 404,000 408,000 413,000Merchandise purchased for resale $400,000Freight-in 10,000Freight-out 5,000Purchase returns 2,000Fenns inventoriable cost was:Answer: c)24Question Time2. On 06/01/08, Pitt Corp.

32、sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepared $200 of delivery costs for Burr for accommodation. On 06/12/08, Pitt received from Burr a remittance in f

33、ull payment amount to:$2,744 2,940 2,944 3,140Answer: c)25Question Time2. Answer:Answer: c)Cash paid net of trade discount = $5,000 X (1 30%) X (1 20%) = $3,500Cash paid within 15 days = $3,500 X (1 98%) = $2,744Add: Delivery cost for Burr 200Cash received from Burr $2,94426Question Time3. How shoul

34、d the following costs affect a retailers inventory? Increase No effect Increase Increase No effect Incease No effect No effectAnswer: a)Freight-inInterest on inventory loan27B. Inventory Valuation28BInventory Valuation 1. G.R.a) GAAP requires that inventory be stated its actual costs No loss should

35、be recognized even though replacement or reproduction costs are lowerCurrent costLower of Cost or Market (LCM)Precious metals and farm productsGross profitStandard costDirect costingCost apportionment by relative sales value2. Exceptions (i.e. where inventory may be not valued its act costs)- Valued

36、 Market if lower- Valued NRV- Valued GP% to convert sales to COGS- Valued std cost- Valued variable costs only (no fixed product cost)- Valued based on relative value within basket purchase- Valued replacement cost if price unstable29BInventory Valuation 3. Lower of Cost or Market“A departure from t

37、he cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its costs.”b) Rationale: conservatism and matching principleOnce inventory has been written down there can be no recovery from the write-down until the units are sold(Differs from marketable sec

38、urities where recoveries of prior write-downs allowed)d) Exceptions The subsequent sales prices is not affected by its market value (ex. the company has a firm sales price contract)- Valued cost even if cost market value30BInventory Valuation 3. Lower of Cost or Markete) Steps used in determining LC

39、M ruleMemorize!Determine market (i.e. replacement cost)Replacement costCeilingfloorNRVNRV Normal profit Determine cost Select the LCM for each individual item or for inventory as a wholeSelling priceLess: Selling cost or Cost to completeNRV Replacement cost = cost to purchase the item valuation date

40、 31BInventory Valuation 3. Lower of Cost or Marketf) Example of LCMItem Cost Replacement cost Selling price Selling cost Normal profitABC$10.50 5.75 4.25$10.25 5.25 4.75$15.00 8.00 5.50$2.50 1.50 1.00$2.50 1.00 1.50A10.25B5.25C4.7512.5010.006.505.504.503.00Market = $10.25Cost = $10.50Market = $5.50C

41、ost = $5.75Market = $4.50Cost = $4.25LCM = $10.25LCM = $5.50LCM = $4.2532BInventory Valuation 3. Lower of Cost or Marketg) Losses from purchase commitments Legally enforceable agreement to purchase a specified amount of goods at fixed prices in the futureDr. Estimated Loss on PC Cr. Accrued Loss on

42、PC If market value INV BEG, additional layer is addedLayer 3 1.30CInventory Cost-Flow Method586. Last-In, First-Out (LIFO)f) LIFO layer container illustrationINV END base yearLayer 1 1.10Layer 2 1.20Purchases varying costsCOGS (LIFO) If INV END Billings, a net current assetIf CIP Billings, a net cur

43、rent liabilityConstruction EXPprofits recognizedCIP- Contract-completed- %-of-completion- Accrued REV- Unearned REV89FLong-Term Construction Contracts5. Contract Losses% of Completion Method Completed-contract method$ of lossTotal expected lossAll profit previously recognized$ of lossTotal expected lossWhen to recognize lossRecognized as soon as the expected losses are estimatedJournal entryD