Valuation of Inventories u Major Classifications of Inventories –Merchandising –Manufacturing...
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Transcript of Valuation of Inventories u Major Classifications of Inventories –Merchandising –Manufacturing...
Valuation of Inventories
Major Classifications of Inventories– Merchandising
– Manufacturing
» raw materials
» work-in-process
» finished goods
Inventory Management & Control– Perpetual System
– Periodic System
Basic Inventory Valuation
Valuation of Inventories (cont.)
Physical Goods to be Included– Goods in transit
» f.o.b. shipping point
» f.o.b. destination
– Consigned goods
» consignor owns the goods
» consignee tries to sell them
– Special sale agreements
» Sales with buy-back agreements
» Sales with high rate of return
» sales on installment
Valuation of Inventories (cont.)
Inventory Errors– ending inventory misstated
– beginning inventory misstated
– both misstated
– purchases misstated
Valuation of Inventories (cont.)
Costs to be Included in Inventory– Product costs
– Period costs
– Manufacturing costs
– Variable versus absorbtion costing
– Purchase discounts
Cost Flow Assumptions– Specific identification
– First In, First Out (FIFO)
– Last In, Last Out (LIFO)
– Average Cost
Valuation of Inventories (cont.)
Special LIFO Problems– LIFO liquidations
– LIFO pools
Basis for Cost Flow Assumption Selection Summary
Inventories: Additional Valuation Problems
Lower of Cost or Market– Ceiling and floor
– Methods of applying lower of cost or market
– Recording market instead of cost
– Evaluation of lower of cost or market rule
Valuation at Net Realizable Value Valuation Using Relative Sales Value Purchase Commitments Financial Statement Presentation & LIFO Reserve