intermediate-accounting-Inventory-and-Cost-of-Goods-Sold課件講義整理

InventoryandCostofGoodsSoldIntermediateAccounting,17EStice|Stice|Skousen?2010CengageLearningPowerPointpresentedby:DouglasCloudProfessorEmeritusofAccounting,PepperdineUniversityInventoryandCostofGoodsSoWhatIsInventory?Inventorydesignatesgoodsheldforsaleinthenormalcourseofbusinessor,foramanufacturer,alsoincludesgoodsinproduction.Foramanufacturingfirm,abroadarrayofproductioncostsisincludedaspartofthecostofinventory.Thetermsrawmaterials,workinprocess,andfinishedgoodsrefertotheinventoriesofamanufacturingenterprise.WhatIsInventory?Inventoryde2WorkinProcessWorkinProcess

(WIP)consistsofmaterialspartlyprocessedandrequiringfurtherworkbeforetheycanbesold.WorkinProcessincludesthreecostelements.DirectmaterialsDirectlaborManufacturingoverheadWorkinProcessWorkinProcess3WorkinProcessDirectmaterialsrefersthecostofmaterialsdirectlyidentifiedwithgoodsinproduction.Manufacturingoverheadreferstotheportionoffactoryoverheadassignabletogoodsinproduction.Directlaborreferstothecostoflabordirectlyidentifiedwithgoodsinproduction.WorkinProcessDirectmaterial4FinishedGoodsFinishedgoods

arethemanufacturedproductsawaitingsale.FinishedGoodsFinishedgoodsa5InventorySystemsTwotypesofinventorysystemsthatkeeptrackofhowmuchinventoryhasbeensoldandatwhatpriceare:Periodicsystem—requiresaphysicalcountoftheinventoryperiodically,andatthepointofsaleonlyrecordsthesaleprice.Perpetualsystem—atpointofsalerecordssellingpriceandtypeofitemsold.Example:abarcodescanningsystem.InventorySystemsTwotypesof6DifferencesinRecordingThefollowingtransactionsoccurredduringtheperiodforCyBorg,Inc.Beginninginventory 50units@$10 $500Purchasesduringtheperiod 300units@$10 3,000Salesduringtheperiod 275units@$15 4,125Endinginventory(physical) 70units@$10 700DifferencesinRecordingThefo7DifferencesinRecordingTorecordpurchasesduringtheperiod:Purchases 3,000 AccountsPayable 3,000Torecordsalesduringtheperiod:AccountsReceivable 4,125 Sales 4,125PeriodicInventorySystemDifferencesinRecordingTorec8DifferencesinRecordingInventory 3,000 AccountsPayable 3,000Torecordpurchasesduringtheperiod:AccountsReceivable 4,125 Sales 4,125CostofGoodsSold 2,750 Inventory 2,750Torecordsalesduringtheperiod:PerpetualInventorySystem275units@$10DifferencesinRecordingInvent9DifferencesinRecordingThecostofgoodssoldintheCyBorgexampleiscomputedasfollows:DifferencesinRecordingTheco10WhoseInventoryIsIt?Reportinventoryonthebalancesheetofthecompanythatholdslegaltitle.LegaltitleisnotdeterminedbywhohasphysicalcustodyoftheinventoryIssuesthatdevelop:GoodsintransitGoodsonconsignmentWhoseInventoryIsIt?Reporti11GoodsinTransitWhoseinventoryisit?WhentermsofsaleareFOB(free

onboard)shippingpoint,titlepassestothebuyerwiththeloadingofgoodsatthepointofshipment.GoodsinTransitWhoseinventor12GoodsinTransitWhentermsofsaleareFOB(free

onboard)destination,legaltitledoesnotpassuntilthegoodsarereceivedbythebuyer.Whoseinventoryisit?GoodsinTransitWhentermsof13GoodsonConsignmentShipperretainstitleandincludesthegoodsininventoryuntiltheirsaleorusebythedealerorcustomer.Consignedgoodsarereportedbytheshipperatthesumof:ThecostofthegoodsThehandlingandshippingcostsGoodsonConsignmentShipperre14ConditionalSales,InstallmentSales,andRepurchaseAgreementsConditionalsalesandinstallmentsalescontractsmayprovideforaretentionoftitlebytheselleruntilthesalespriceisfullyrecovered.Firmssometimessellinventorytoanothercompanybutatthesametimeagreetorepurchasetheinventoryatsomefuturedate.Theserepurchaseagreementsare,inessence,allowingthesellingcompanytousetheinventorytosecureashort-termloan.ConditionalSales,Installment15Inventorycostsarecomprisedofallexpenditures,bothdirectandindirect,relatingtoacquisition,preparation,andplacementforsale.Expendituresthatarerelativelysmallanddifficulttoallocateareperiodcosts.Thesearerecognizedasexpensesinthecurrentperiod.ItemsIncludedinInventoryCostInventorycostsarecomprised16ItemsIncludedinInventoryCostInventorycostsarecomprisedofallexpenditures,bothdirectandindirect,relatingtoacquisition,preparation,andplacementforsale.Coststhatcanbeidentifiedwiththeproductbeingmanufacturedarecalled

productorinventoriablecosts.ItemsIncludedinInventoryCo17ItemsIncludedinInventoryCostActivity-basedcost(ABC)

systems

strivetoallocateoverheadbasedonclearlyidentifiedcostdrivers—characteristicsoftheproductionprocessthatareknowntocreateoverheadcosts.ItemsIncludedinInventoryCo18DiscountsasReductionsinCostCashdiscounts

arediscountsgrantedforpaymentofinvoiceswithinalimitedtimeperiod.Example:Apurchaseof$10,000providesforpaymentona2/10,n/30basis.Ifthebuyerpaysbythe10thday,$9,800settlestheinvoice.Afterthat,thefull$10,000isrequired.DiscountsasReductionsinCos19PurchasesReported

NetMethodTorecordthepurchaseofmerchandisepricedat$10,000withacashdiscountof2%:Inventory 9,800 AccountsPayable 9,800Torecordthepaymentoftheinvoicewithindiscountperiod:AccountsPayable 9,800 Cash 9,800(continues)PurchasesReported

NetMethod20PurchasesReported

NetMethodTorecordpaymentoftheinvoiceafterthediscountperiod:AccountsPayable 9,800DiscountsLost 200 Cash 10,000Torecordadjustmentattheendoftheperiodifinvoicehasnotbeenpaidandthediscountperiodhaslapsed:DiscountsLost 200 AccountsPayable 200PurchasesReported

NetMethod21PurchasesReported

GrossMethodAccountsPayable 10,000 Inventory 200 Cash 9,800(continues)Torecordthepurchaseofmerchandisepricedat$10,000withacashdiscountof2%:Inventory 10,000 AccountsPayable 10,000Torecordthepaymentoftheinvoicewithindiscountperiod:PurchasesReported

GrossMetho22PurchasesReported

GrossMethodNoentryrequiredTorecordpaymentoftheinvoiceafterthediscountperiod:AccountsPayable 10,000 Cash 10,000Torecordadjustmentattheendoftheperiodifinvoicehasnotbeenpaidandthediscountperiodhaslapsed:PurchasesReported

GrossMeth23PurchaseReturnsandAllowancesAdjustmentsarealsomadewhengoodsaredamagedorarelesserinqualitythanordered.Sometimesthecustomerreturnsthegoods.AccountsPayable 400 PurchaseReturns andAllowances 400 PeriodicInventorySystemPerpetualInventorySystemAccountsPayable 400 Inventory 400

PurchaseReturnsandAllowance24InventoryValuationMethodsSpecificIdentificationLIFOCostAllocationMethodsAverage

CostFIFOInventoryValuationMethodsSpe25InventoryValuationMethodsThefourmethodswillbeillustratedusingthefollowingsimpleexampleforDaltonCompany.Note:NobeginninginventoryInventoryValuationMethodsThe26SpecificIdentificationMethodAssignstheactualcostoftheassettoinventoryandcostofgoodssold.Providesahighlyobjectivemethodofmatchingcostsbecausecostflowexactlymatchesphysicalgoodsflow.Isalmostimpossibletoimplementcosteffectively.SpecificIdentificationMethod27SpecificIdentificationMethod 200 units@$10perunit 300 units@$12perunit 500 units@$11perunitSold200unitsfromtheJanuary1and500fromtheJuly15purchase. 100 units@$13perunit1,100unitsJan. 1Mar.23July15Nov.6Purchases:SpecificIdentificationMethod28SpecificIdentificationMethod 200 units@$10perunit 500 units@$11perunitJan. 1July15=$2,000 =5,500Totalcostofgoodssold $7,500SpecificIdentificationMethod29SpecificIdentificationMethod 300 units@$12perunit 100 units@$13perunitMar.23Nov.6=$3,600 =1,300Endinginventory $4,900SpecificIdentificationMethod30AverageCostMethodTheaveragecostmethodassignsthesameaveragecosttoeachunitsoldandeachitemininventory.Forperiodicinventory,theunitcostistheweightedaveragefortheentireperiod.AverageCostMethodTheaverage31AverageCostMethod 200 units@$10perunit 300 units@$12perunit 500 units@$11perunit 100 units@$13perunit1,100unitsJan. 1Mar.23July15Nov.6= $2,000= 3,600= 5,500= 1,300 $12,400$12,4001,100units=$11.27perunit(rounded)Costofgoodssold=$11.27

700=$7,890Endinginventory=$11.27

400=$4,510AverageCostMethod 200 units32First-In,First-Out

(FIFO)MethodFIFOassignshistoricalunitcosttocostofgoodssoldintheorderthecostsareincurred.Providesaclosematchbetweenphysicalproductflowandproductcostflow.Resultsinthesameinventoryvaluationandcostofgoodssoldregardlessofwhetherperpetualorperiodicinventoryisused.First-In,First-Out

(FIFO)Me33FIFOMethod 200 units@$10perunit 300 units@$12perunit 500 units@$11perunit 100 units@$13perunitJan. 1Mar.23July15Nov.6Totalcostofgoodssold $7,800Sold200=$2,000Sold300=3,600Sold200=2,200FIFOMethod 200 units@$10pe34FIFOMethod 300 units@$11perunit 100 units@$13perunitMar.23Nov.6=$3,300=1,300Endinginventory $4,600FIFOMethod 300 units@$11pe35Last-In,First-Out

(LIFO)MethodLIFO

assignsthemostrecenthistoricalcoststocostofgoodssoldandtheoldestcoststoinventory.Isusedprimarilytominimizetaxableincome.Resultsindifferencesbetweencostofgoodssoldandinventoryforperpetualversusperiodicmethods.Last-In,First-Out

(LIFO)Met36LIFOMethod 200 units@$10perunit 300 units@$12perunit 500 units@$11perunit 100 units@$13perunitJan. 1Mar.23July15Nov.6Totalcostofgoodssold $8,000Sold100=$1,300Sold500=$5,500Sold100=$1,200LIFOMethod 200 units@$10pe37LIFOMethod=$2,000=2,400EndingInventory $4,400 200 units@$10perunit 200 units@$12perunitJan. 1Mar.23LIFOMethod=$2,000=2,438intermediate-accounting-Inventory-and-Cost-of-Goods-Sold課件講義整理39(continues)(continued)(continues)(continued)40intermediate-accounting-Inventory-and-Cost-of-Goods-Sold課件講義整理41LIFOLayersThefollowingdataareforRyanesCompanyforthefirstthreeyearsofitsexistence:LIFOLayersThefollowingdata42LIFOLayersEachyearinwhichthenumberofunitspurchasedexceedsthenumberofunitssold,anewLIFO

layeriscreatedinendinginventory.ManycompaniesthatuseLIFOreporttheamountoftheirLIFOreserve,eitherasaparentheticalnoteinthebalanceorthenotestothefinancialstatements.LIFOLayersEachyearinwhich43CalculatingFIFOCostofGoodsforRyanesfor2010TheFIFOcalculationcanbedoneasfollows:CalculatingFIFOCostofGoods44LIFOLiquidationRyanesCompany’spurchasesandsalesfor2011areasfollows:Purchases 60units@$20Sales 150units@$25Becausethenumberofunitspurchaseddoesnotexceedthenumbersold,nonewLIFOlayerisaddedin2011.(continues)LIFOLiquidationRyanesCompany45LIFOLiquidationLIFOliquidationcausesoldLIFOlayercoststoflowthroughcostofgoodssold,sometimeswithbizarreresults.LIFOLiquidationLIFOliquidati46(continues)(continues)47(concluded)(concluded)48IncomeTaxEffectsIfacompanyhaslargeinventorylevels,isexperiencingsignificantinventorycostincreases,anddoesnotanticipatereducinginventorylevelsinthefuture,LIFOgivessubstantialcashflowbenefitsintermsoftaxdeferrals.IncomeTaxEffectsIfacompany49BookkeepingCostsThebookkeepingassociatedwithLIFOisabitmorecomplicatedthanwithFIFOoraveragecosts.Indollarsandcents,aLIFOsystemcostsmoretooperate.Untilinformationtechnologyisimproved,smallbusinesseswillcontinuetoleantowardnotusingLIFO.BookkeepingCostsThebookkeepi50ImpactonFinancialStatementsWhileLIFOgivestaxbenefits,italsogivesreduced

reportedincomeandreducedreportedinventory.ImpactonFinancialStatements51InternationalAccountingandInventoryValuationIn1992,theIASBdecidedtoofficiallyendorseFIFOandaveragecost,tokillthebasestockmethod,andtoletLIFOliveonasasecond-class“allowedalternativetreatment.”In2003,theIASBadoptedarevisedversionofIAS2

anddidawaywithLIFO.InternationalAccountingandI52InventoryAccountingChangeIfacompanychangesitsmethodofvaluinginventory,thechangeisaccountedforasachangeinaccountingprinciple.Reporttheeffectofchangingmethods

onthefinancialstatements.LIFOAverageCostorFIFOchangetoInventoryAccountingChangeIf53InventoryAccountingChangeAnyMethodchangetoLIFONoadjustmenttofinancialstatementsforchangetoLIFO,butspecialdisclosurerequired.InventoryAccountingChangeAny54LowerofCostorMarketThetermmarketinlowerofcostormarketmeansreplacementcost.ReplacementCostCeiling:Alsoknownasthenetrealizablevalue(NRV)Floor:NetrealizablevaluelessanormalprofitmarginMarketHistoricalCostcomparetoRangeLowerofCostorMarketTheter55intermediate-accounting-Inventory-and-Cost-of-Goods-Sold課件講義整理56GrossProfitMethodBeginninginventory,January1 $25,000Sales,January1–January31 50,000Purchases,January1–January31 40,000Historicalgrossprofitpercentages: Lastyear 40% Twoyearsago 37% Threeyearsago 42%Lastyear’s40%isconsideredagoodestimate.GrossProfitMethodBeginningi57GrossProfitMethodSales(actual) $50,000 100 %Costofgoodssold(estimate) 30,000

60 %Grossprofit(estimate) $20,000 40 %Beginninginventory(actual) $25,000+ Purchases(actual) 40,000– Costofgoodsavailablefor sale(actual) $65,000– Endinginventory(estimate) 35,000= Costofgoodssold(estimate) $30,000GrossProfitMethodSales(actu58GrossProfitMethodSales(actual) $50,000 100 %Costofgoodssold(estimate) 31,500

63 %Grossprofit(estimate) $18,500 37 %Beginninginventory(actual) $25,000+ Purchases(actual) 40,000– Costofgoodsavailablefor sale(actual) $65,000– Endinginventory(estimate) 33,500= Costofgoodssold(estimate) $31,500GrossProfitMethodSales(actu59GrossProfitMethodSales(actual) $50,000 100 %Costofgoodssold(estimate) 29,000

58 %Grossprofit(estimate) $21,000 42 %Beginninginventory(actual) $25,000+ Purchases(actual) 40,000– Costofgoodsavailablefor sale(actual) $65,000– Endinginventory(estimate) 36,000= Costofgoodssold(estimate) $29,000GrossProfitMethodSales(actu60EffectsofErrorsinRecordingInventoryFailuretocorrectlyreportinventoryresultsinmisstatementsonboththebalancesheetandtheincomestatement.Therearethreetypicalinventoryerrors:OverstatementofendinginventorythroughanimproperphysicalcountUnderstatementofendinginventorythroughanimproperphysicalcountUnderstatementofendinginventorythroughdelayinrecordingapurchaseuntilthefollowingyearEffectsofErrorsinRecording61intermediate-accounting-Inventory-and-Cost-of-Goods-Sold課件講義整理62UsingInventoryInformation

forFinancialAnalysisConsiderthefinancialinformationrelatingtoinventoriesforDeere&Co.providedbelow.UsingInventoryInformation

f63InventoryTurnoverAppropriatenessofinventorysizeandpositioncanbemeasuredbycalculatingtheinventoryturnover

ratio.CostofGoodsSold $16,252.8AverageInventory $2,147==7.57times($2,337+$1,957)/2=$2,147InventoryTurnoverAppropriaten64NumberofDays’SalesinInventoryNumberofdays’salesininventory=48.2AverageInventoryAverageDailyCostofGoodsSold=$2,147$44.528($2,337+$1,957)/2$16,252.8/365NumberofDays’SalesinInven65Deere’snumberofdays’salesin

inventoryresultsmeanthat,onaverage,Deere&Co.hasenoughinventorytocontinueoperationsfor48.2daysusingjustitsexistinginventory.NumberofDays’SalesinInventoryDeere’snumberofdays’sales66RetailInventoryMethodTheretailinventorymethodiswidelyemployedbyretailfirmstoarriveatreliableestimatesofinventorypositionwheneverdesired.Thismethodpermitstheestimationofaninventoryamountwithoutthetimeandexpenseoftakingaphysicalinventoryormaintainingdetailedperpetualrecords.RetailInventoryMethodTheret67RetailInventoryMethodInventory,Jan.1 $30,000 $50,000PurchasesinJanuary 30,000

40,000Goodsavailableforsale $60,000 $90,000

Cost RetailCostpercentage($60,000÷

$90,000)=66.7%DeductsalesforJanuary 65,000Inventory,January31,atretail $25,000Inventory,January31,atestimatedcost($25,000

66.7%) $16,675OneCostPercentageRetailInventoryMethodInvento68RetailInventoryMethodInventory,Jan.1 $30,000 $50,000PurchasesinJanuary 30,000

40,000Goodsavailableforsale $60,000 $90,000

Cost RetailCostpercentage: Beg.inventory($30,000+$50,000)=60.0%

Purchases($30,000+$40,000)=75.0%DeductsalesforJanuary 65,000MultipleCostPercentagesLIFO($25,000

60.0%)

$15,000Inventory,January31,atestimatedcost:FIFO($25,000

75.0%) $18,750Inventory,January31,atretail $25,000RetailInventoryMethodInvento69RetailInventoryMethod:LowerofCostorMarketRetailInventoryMethod:Lower70LIFOPoolsToillustratetheformationofLIFOpools,thefollowingdataareprovidedforEloharCo.,aselleroffineneckties:LIFOPoolsToillustratethefo71LIFOPoolsIftwotypesofnecktiesareaccountedforseparately,computationsofLIFOendinginventoryareasfollows:LIFOPoolsIftwotypesofneck72LIFOPoolsLIFOcostofgoodssold:LIFOPoolsLIFOcostofgoodss73Dollar-ValueLIFOUnderdollar-valueLIFO,LIFOlayersaredeterminedbasedontotaldollarchangesratherthanquantitychanges.Withdollar-valueLIFO,theunitofmeasurementisthedollar.Dollar-ValueLIFOUnderdollar-74Dollar-ValueLIFOFirst,thereplacementcostofendinginventoryiscomputedusingpricesprevailingattheendoftheperiod.Thebeginninginventorywas$22,000,sotherewasanincreaseininventoryduringtheperiod.Dollar-ValueLIFOFirst,there75TodetermineifanewLIFOlayerwasadded,weneedtofindoutwhatthevalueofthebeginninginventorywouldbeatendingprices.Dollar-ValueLIFOTodetermineifanewLIFOlay76Afteradjustingforpriceincreasesduringtheyear,wecanseethatthedollarvalueofinventoryincreased.Dollar-ValueLIFOAfteradjustingforpriceincr77Finally,dollar-valueLIFOendinginventoryiscomputedasfollows:Dollar-ValueLIFOFinally,dollar-valueLIFOend78Dollar-ValueLIFORetailMethodThefollowingistheLIFOretaillayerdataforMiracleMaxDepartmentStoreasofDecember31.Dollar-ValueLIFORetailMetho79Dollar-ValueLIFORetailMethodAssumethatthe2011year-endpriceindexis1.08.Dollar-ValueLIFORetailMetho80Dollar-ValueLIFORetailMethodDollar-ValueLIFORetailMetho81PurchaseCommitmentsExtremefluctuationsinthepriceofinventorypurchasescanexposeacompanytoexcessiverisk.Ofthedifferentwaystomanagethisrisk,thesimplestisapurchasecommitmentthatlocksintheinve