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Tag Archives: Inventory

Opinions With Regard To Capitalization Of Spare-parts

Capitalization of engineering spare-parts to a machine or equipment is somewhat argumentive and can have different opinions. How to identify which items are to capitalize, items’ value upto how much, how much longivity should be, etc may have different opinions. Company to company may have different policies and practices  of capitalization of spares. There are thousands of items in an engineering stock. One item may have multiple aspects to consider before doing capitalization. Let us have a look on the aspects which may come while doing capitalization. Longivity of the …

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Auditing Inventory Valuation – A Time Consuming Effort

Auditing a manufacturing company and a service providing company are not the same in both practical and tactical point of view. The auditos have to adopt different strategy for different companies. Audit checklist also vary from company to company. Let us have a look on what an auditor can see in a manufacturing company. Inventory Valuation for Materials: An auditor should check whether inventory valuation is over or under stated or not. First, he has to excercise a pure stock-take at a cut-off date determined by the management of the …

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How To Calculate Unrealised Profit In Inventory Consolidation

Do all transactions require adjustment entries for NCI? No, not all transactions require an adjustment entry for the Non-Controlling Interest (NCI) or Minority Interest calculation. Calculating Unrealised profit on inventory is a consolidation adjustment. The accounting adjusting entries for NCI require for those transactions which have the following characteristics: • After the transaction, the other party to the transaction (for two-company structures this is the parent) must have on hand an asset (e.g. inventory) on which the unrealised profit is accrued. • The transaction must result in the subsidiary recording …

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Estimating Net Realizable Value of Inventory

Estimates of net realizable value (NRV)

Estimating Net Realizable Value of Inventory Paragraph 9 of IAS 2 requires that ‘Inventories shall be measured at the lower of cost and net realizable value’. As the purpose of acquiring or manufacturing inventory items is to sell them at a profit inventory will initially be recognized at cost. This cost is periodically compared to the inventory’s net realizable value to determine if the sale of the inventory will recover at least its cost. If cost is not expected to be recovered the inventory is written down to net realizable …

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Which Cost Formula To Use For Inventory Valuation?

One question may burn you inside as to: Which Cost Formula To Use For Inventory Valuation? The choice of Inventory Valuation method is a matter for management judgment and depends upon the nature of the inventory, the information needs of management and financial statement users, and the cost of applying the formulas. For example, the weighted average method is easy to apply and is particularly suited to inventory where homogeneous products are mixed together, like iron ore or spring water. On the other hand, first-in, first-out may be a better …

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First In First Out Cost Formula Of Inventory Accounting

FIFO (First-in, first-out  cost formula) assumes that items of inventory that were purchased or produced by a company first are sold first and the items remaining in ending inventory at the end of the period are those most recently purchased or produced. Thus, more recent purchase costs are assigned to the inventory asset account, and older costs are assigned to the cost of goods sold expense account. Consider the following example: Perhaps, there are 515 DVD Players on hand at 30 June 2015, and recent purchase invoices showed the following …

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Methods Of Assigning Cost To Inventory On Sales

Inventory On Sales

The nature of inventory held by an entity does not affect its initial recognition at cost but has a significant impact when that inventory is sold. Under the perpetual system the cost of inventory items is transferred to a ‘Cost of Goods Sold’ expense account on sale, and under the periodic system a ‘Cost of Goods Sold’ figure is calculated at the end of the reporting period. This is an easy task if the nature of inventory is such that it is possible to clearly identify the exact inventory item …

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Year End Inventory Count And Accounting Procedures

Year End Inventory Accounting To ensure that reported figures for inventory, cost of sales and other expenses are accurate and complete, certain procedures must be carried out at the end of each accounting period as well as Year End Inventory Accounting. It is essential that good internal controls be instituted to ensure that inventory is protected from fraud or loss and that inventory figures are complete and accurate. This section examines the physical count, end-of-year cut-off and essential reconciliation procedures. Physical count Under the periodic method, inventory must be counted …

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Year End Inventory Accounting For Goods in Transit

Year End Inventory Accounting for Goods in transit: Accounting for goods in transit at the end of the reporting period will depend upon the terms of trade. Where goods are purchased on an FOB shipping basis, the goods belong to the purchaser from the time they are shipped, and should be included in inventory/accounts payable at the end of the reporting period. All such purchases in transit will need to be identified and the adjusting journal entry should be posted. If goods are purchased on FOB destination terms, no adjustment …

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Year End Inventory Cutoff Procedures

Year End Inventory Cutoff Procedures: Under both periodic and perpetual methods there is a need to ensure that, when a physical count is conducted, there is a proper cut-off of the record keeping so that the accounting records reflect the results of the physical count and include all transactions relevant to the accounting period, while excluding those that belong to other periods. For all inventory transactions (sales, purchases and returns), it is possible for inventory records to be updated before transaction details are posted to the general ledger accounts. For …

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