Nguyên tắc Kế toán (11E) - Chương 6: Bài giảng từ Coby Harmon

Prepared by Coby Harmon University of California, Santa Barbara Westmont College

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Inventories

6

Learning Objectives

After studying this chapter, you should be able to:

[1] Determine how to classify inventory and 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-market basis of accounting for inventories.

[5] Indicate the effects of inventory errors on the financial statements.

[6] Compute and interpret the inventory turnover.

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Preview of Chapter 6

Accounting Principles Eleventh Edition Weygandt Kimmel Kieso

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Classifying Inventory

Manufacturing Company

Merchandising Company

Three Classifications:

One Classification:

 Raw Materials

 Inventory

 Work in Process

 Finished Goods

Helpful Hint Regardless of the classification, companies report all inventories under Current Assets on the balance sheet.

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(See page 324)

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Determining Inventory Quantities

Physical Inventory taken for two reasons:

Perpetual System

1. Check accuracy of inventory records.

2. Determine amount of inventory lost due to wasted raw

materials, shoplifting, or employee theft.

Periodic System

1. Determine the inventory on hand.

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

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LO 1 Determine how to classify inventory and 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 the end of the accounting period.

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LO 1 Determine how to classify inventory and inventory quantities.

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Determining Inventory Quantities

Determining Ownership of Goods

Goods in Transit

 Purchased goods not yet received.

 Sold goods not yet delivered.

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.

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LO 1 Determine how to classify inventory and inventory quantities.

Determining Inventory Quantities

Goods in Transit

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.

Illustration 6-2 Terms of sale

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LO 1 Determine how to classify inventory and inventory quantities.

Determining Inventory Quantities

Review Question

Goods in transit should be included in the inventory of the buyer when the:

a. public carrier accepts the goods from the seller.

b. goods reach the buyer.

terms of sale are FOB destination.

terms of sale are FOB shipping point.

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LO 1 Determine how to classify inventory and inventory quantities.

Determining Inventory Quantities

Determining Ownership of Goods

Consigned Goods

To hold the goods of other parties and try to sell the goods for them for a fee, but without taking ownership of the goods.

Many car, boat, and antique dealers sell goods on consignment, why?

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LO 1 Determine how to classify inventory and inventory quantities.

DO IT!

>

Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. You have been given the information listed below. Discuss how this information affects the reported cost of inventory.

1. Hasbeen included in the inventory goods held on consignment for Falls Co.,

costing $15,000.

2. The company did not include in the count purchased goods of $10,000, which

were in transit (terms: FOB shipping point).

3. The company did not include in the count inventory that had been sold with a

cost of $12,000, which was in transit (terms: FOB shipping point).

Solution

1. Goods of $15,000 held on consignment should be deducted from the inventory

count.

2. The goods of $10,000 purchased FOB shipping point should be added to the

inventory count.

Item 3 was treated correctly.

Inventory should be $195,000 ($200,000 - $15,000 + $10,000).

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LO 1

Advance slide in presentation mode to reveal answer.

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LO 1 Determine how to classify inventory and inventory quantities.

Inventory Costing

Inventory is accounted for at cost.

 Cost includes all expenditures necessary to acquire goods and

place them in a condition ready for sale.

 Unit costs are applied to quantities to determine the total cost of the inventory and the cost of goods sold using the following costing methods:

► Specific identification

► First-in, first-out (FIFO)

► Last-in, first-out (LIFO)

Cost Flow Assumptions

► Average-cost

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Inventory Costing

Illustration: Crivitz TV Company purchases three identical 50- inch TVs on different dates at costs of $700, $750, and $800. During the year Crivitz sold two sets at $1,200 each. These facts are summarized below.

Illustration 6-3

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LO 2 Explain the 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 6-4

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

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.

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Inventory Costing

Cost Flow Assumption

does not need to be

consistent with the

physical movement of

goods

Illustration 6-12 Use of cost flow methods in major U.S. companies

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Illustration: Data for Houston Electronics’ Astro condensers.

Illustration 6-5

(Beginning Inventory + Purchases) - Ending Inventory = Cost of Goods Sold

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

First-In, First-Out (FIFO)

 Costs of the earliest goods purchased are the first to

be recognized in determining cost of goods sold.

 Often parallels actual physical flow of merchandise.

 Companies determine the cost of the ending inventory by taking the unit cost of the most recent purchase and working backward until all units of inventory have been costed.

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

First-In, First-Out (FIFO)

Illustration 6-6

COST OF GOODS AVAILABLE FOR SALE

STEP 1: ENDING INVENTORY

STEP 2: COST OF GOODS SOLD

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LO 2

Cost Flow Assumptions

First-In, First-Out (FIFO)

Illustration 6-6

Helpful Hint Another way of thinking about the calculation of FIFO ending inventory is the LISH assumption—last in still here.

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Last-In, First-Out (LIFO)

 Costs of the latest goods purchased are the first to be

recognized in determining cost of goods sold.

 Seldom coincides with actual physical flow of

merchandise.

 Exceptions include goods stored in piles, such as coal or

hay.

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Last-In, First-Out (LIFO)

Illustration 6-8

COST OF GOODS AVAILABLE FOR SALE

STEP 1: ENDING INVENTORY

STEP 2: COST OF GOODS SOLD

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LO 2

Cost Flow Assumptions

Last-In, First-Out (LIFO)

Helpful Hint Another way of thinking about the calculation of LIFO ending inventory is the FISH assumption—first in still here.

Illustration 6-8

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Average-Cost

 Allocates cost of goods available for sale on the basis of

weighted-average unit cost incurred.

 Applies weighted-average unit cost to the units on

hand to determine cost of the ending inventory.

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Average-Cost

Illustration 6-11

COST OF GOODS AVAILABLE FOR SALE

STEP 1: ENDING INVENTORY

STEP 2: COST OF GOODS SOLD

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Cost Flow Assumptions

Average-Cost

Illustration 6-11

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LO 2 Explain the accounting for inventories and apply the inventory cost flow methods.

Financial Statement and Tax Effects

Comparative effects of cost flow methods

Illustration 6-13

HOUSTON ELECTRONICS Condensed Income Statements

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LO 3 Explain the financial effects of inventory cost flow assumptions.

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.

Illustration 6-15 Disclosure of change in cost flow method

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Cost Flow Assumptions

Review Question

The cost flow method that often parallels the actual physical flow of merchandise is the:

a. FIFO method.

b. LIFO method.

c. average cost method.

d. gross profit method.

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LO 3 Explain the financial effects of inventory cost flow assumptions.

Cost Flow Assumptions

Review Question

In a period of inflation, the cost flow method that results in the lowest income taxes is the:

a. FIFO method.

b. LIFO method.

c. average cost method.

d. gross profit method.

Helpful Hint A tax rule, often referred to as the LIFO conformity rule, requires that if companies use LIFO for tax purposes, they must also use it for financial reporting purposes. This means that if a company chooses the LIFO method to reduce its tax bills, it will also have to report lower net income in its financial statements.

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LO 3 Explain the financial effects of inventory cost flow assumptions.

(See page 324)

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Inventory Costing

Lower-of-Cost-or-Market

When the value of inventory is lower than its cost

 Companies “write down” the inventory to its market value in

the period in which the price decline occurs.

 Market value = Replacement Cost

 Example of conservatism.

International Note Under U.S. GAAP, companies cannot reverse inventory write-downs if inventory increases in value in subsequent periods. IFRS permits companies to reverse write-downs in some circumstances.

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LO 4 Explain the lower-of-cost-or-market basis of accounting for inventories.

Inventory Costing

Lower-of-Cost-or-Market

Illustration: Assume that Ken Tuckie TV has the following lines of merchandise with costs and market values as indicated.

Illustration 6-16

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LO 4 Explain the lower-of-cost-or-market basis of accounting for inventories.

Inventory Errors

Common Cause:

 Failure to count or price inventory correctly.

 Not properly recognizing the transfer of legal title to goods

in transit.

 Errors affect both the income statement and balance sheet.

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LO 5 Indicate the effects of inventory errors on the financial statements.

Inventory Errors

Income Statement Effects

Inventory errors affect the computation of cost of goods sold and net income.

Illustration 6-17

Illustration 6-18

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LO 5 Indicate the effects of inventory errors on the financial statements.

Inventory Errors

Income Statement Effects

Inventory errors affect the computation of cost of goods sold and net income in two periods.

 An error in ending inventory of the current period will have a reverse effect on net income of the next accounting period.

 Over the two years, the total net income is correct because

the errors offset each other.

 Ending inventory depends entirely on the accuracy of taking

and costing the inventory.

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LO 5 Indicate the effects of inventory errors on the financial statements.

Inventory Errors

2013

2014

Illustration 6-19

Incorrect

Correct

Incorrect

Correct

Sales

$

80,000

$

80,000

$

90,000

$

90,000

Beginning inventory

20,000

12,000

15,000

Cost of goods purchased

40,000

68,000

Cost of goods available

60,000

80,000

83,000

Ending inventory

12,000

15,000

23,000

Cost of good sold

48,000

45,000

57,000

60,000

Gross profit

32,000

35,000

33,000

30,000

Operating expenses

10,000

20,000

Net income

$

22,000

$

25,000

$

13,000

$

10,000

Combined income for 2-year period is correct.

$3,000 Net Income overstated

($3,000) Net Income understated

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LO 5 Indicate the effects of inventory errors on the financial statements.

Inventory Errors

Question

Understating ending inventory will overstate:

a. assets.

b. cost of goods sold.

c. net income.

d. owner's equity.

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LO 5 Indicate the effects of inventory errors on the financial statements.

Inventory Errors

Balance Sheet Effects

Effect of inventory errors on the balance sheet is determined by using the basic accounting equation:.

Illustration 6-17

Illustration 6-20

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LO 5 Indicate the effects of inventory errors on the financial statements.

Statement Presentation and Analysis

Presentation

Balance Sheet - Inventory classified as current asset.

Income Statement - Cost of goods sold subtracted from sales.

There also should be disclosure of

1) major inventory classifications,

2) basis of accounting (cost or LCM), and

3) costing method (FIFO, LIFO, or average).

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Statement Presentation and Analysis

Analysis

Inventory management is a double-edged sword

1. High Inventory Levels - may incur high carrying costs

(e.g., investment, storage, insurance, obsolescence, and

damage).

2. Low Inventory Levels – may lead to stockouts and lost

sales.

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LO 6 Compute and interpret the inventory turnover.

Statement Presentation and Analysis

Inventory turnover measures the number of times on average the inventory is sold during the period.

Cost of Goods Sold

Inventory Turnover

Average Inventory

Days in inventory measures the average number of days inventory is held.

Days in Year (365)

Days in Inventory

Inventory Turnover

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LO 6 Compute and interpret the inventory turnover.

Statement Presentation and Analysis

Illustration: Wal-Mart reported in its 2011 annual report a beginning inventory of $32,713 million, an ending inventory of $36,318 million, and cost of goods sold for the year ended January 31, 2011, of $315,287 million. The inventory turnover formula and computation for Wal-Mart are shown below.

Illustration 6-22

Days in Inventory: Inventory turnover of 9.1 times divided into 365 is approximately 40.1 days. This is the approximate time that it takes a company to sell the inventory.

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LO 6 Compute and interpret the inventory turnover.

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APPENDIX 6A Cost Flow Methods

Perpetual Inventory System

Illustration:

Illustration 6A-1

HOUSTON ELECTRONICS Astro Condensers

Assuming the Perpetual Inventory System, compute Cost of Goods Sold and Ending Inventory under FIFO, LIFO, and Average cost.

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LO 7 Apply the inventory cost flow methods to perpetual inventory records.

APPENDIX 6A Cost Flow Methods

Perpetual Inventory System

First-In, First-Out (FIFO)

Illustration 6A-2

Ending Inventory

Cost of Goods Sold

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LO 7 Apply the inventory cost flow methods to perpetual inventory records.

APPENDIX 6A Cost Flow Methods

Perpetual Inventory System

Last-In, First-Out (LIFO)

Illustration 6A-3

Ending Inventory

Cost of Goods Sold

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LO 7 Apply the inventory cost flow methods to perpetual inventory records.

APPENDIX 6A Cost Flow Methods

Perpetual Inventory System

Average-Cost

Illustration 6A-4

Ending Inventory

Cost of Goods Sold

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LO 7 Apply the inventory cost flow methods to perpetual inventory records.

APPENDIX 6B Estimating Inventories

Gross Profit Method

A method of estimating the cost of ending inventory by applying a gross profit rate to net sales. A company needs to know

► its net sales, cost of goods available for sale, and gross profit

rate.

Illustration 6B-1

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LO 8 Describe the two methods of estimating inventories.

APPENDIX 6B Estimating Inventories

Illustration: Kishwaukee Company records show net sales of $200,000, beginning inventory $40,000, and cost of goods purchased $120,000. In the preceding year, the company realized a 30% gross profit rate. It expects to earn the same rate this year. Compute the estimated cost of the ending inventory at January 31 under the gross profit method.

Illustration 6B-1

Illustration 6B-2

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APPENDIX 6B Estimating Inventories

Retail Inventory Method

► Retail companies establish a relationship between cost and sales

price.

► Company applies cost-to-retail percentage to ending inventory at

retail prices to determine inventory at cost.

Illustration 6B-3

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LO 8

APPENDIX 6B Estimating Inventories

Illustration: Note that it is not necessary to take a physical inventory to determine the estimated cost of goods on hand at any given time.

Illustration 6B-4

The major disadvantage of the retail method is that it is an averaging technique. It may produce an incorrect inventory valuation if the mix of the ending inventory is not representative of the mix in the goods available for sale.

Illustration 6B-1

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LO 8

A Look at IFRS

Key Points

 The requirements for accounting for and reporting inventories

are more principles-based under IFRS. That is, GAAP provides more detailed guidelines in inventory accounting.

 The definitions for inventory are essentially similar under IFRS and GAAP. Both define inventory as assets held-for-sale in the ordinary course of business, in the process of production for sale (work in process), or to be consumed in the production of goods or services (e.g., raw materials).

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Key Points

 Who owns the goods—goods in transit or consigned goods— as well as the costs to include in inventory, are accounted for the same under IFRS and GAAP.

 Both GAAP and IFRS permit specific identification where appropriate. IFRS actually requires that the specific identification method be used where the inventory items are not interchangeable (i.e., can be specifically identified). If the inventory items are not specifically identifiable, a cost flow assumption is used. GAAP does not specify situations in which specific identification must be used.

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Key Points

 A major difference between IFRS and GAAP relates to the

LIFO cost flow assumption. GAAP permits the use of LIFO for inventory valuation. IFRS prohibits its use. FIFO and average- cost are the only two acceptable cost flow assumptions permitted under IFRS.

 IFRS requires companies to use the same cost flow

assumption for all goods of a similar nature. GAAP has no specific requirement in this area.

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Key Points

 In the lower-of-cost-or-market test for inventory valuation,

IFRS defines market as net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling expenses. GAAP, on the other hand, defines market as essentially replacement cost.

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Key Points

 Under GAAP, if inventory is written down under the lower-of-

cost-or-market valuation, the new basis is now considered its cost. As a result, the inventory may not be written back up to its original cost in a subsequent period. Under IFRS, the write- down may be reversed in a subsequent period up to the amount of the previous write-down. Both the write-down and any subsequent reversal should be reported on the income statement as an expense. An item-by-item approach is generally followed under IFRS.

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Key Points

 Unlike property, plant, and equipment, IFRS does not permit the option of valuing inventories at fair value. As indicated above, IFRS requires inventory to be written down, but inventory cannot be written up above its original cost.

 Similar to GAAP, certain agricultural products and mineral

products can be reported at net realizable value using IFRS.

 IFRS allows companies to report inventory at standard cost if it does not differ significantly from actual cost. Standard cost is addressed in managerial accounting courses.

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LO 9 Compare the accounting procedures for inventories under GAAP and IFRS.

A Look at IFRS

Looking to the Future

One convergence issue that will be difficult to resolve relates to the use of the LIFO cost flow assumption. As indicated, IFRS specifically prohibits its use. Conversely, the LIFO cost flow assumption is widely used in the United States because of its favorable tax advantages. In addition, many argue that LIFO from a financial reporting point of view provides a better matching of current costs against revenue and, therefore, enables companies to compute a more realistic income.

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