Inventory

EVALUATION of inventory management

Inventory System

COST TO INCLUDE :
All cost purchase, conversion, needed to bring inventories to their present location and condition.

Valuation

Include : Inget dalam production cost ada 3 tipe cost ; raw material, labor, dan MOH (fixed and variable) , any freight in. (depends on term).

Inventory adjustment

Specific Identification method

❌: exclude :
Abnormal cost waste
OTHER Labor or conversion cost
any storage cost --> ga nyambung ini period cost
selling cost --> cost after inventory is ready.

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FIFO

LIFO

weighted average

untuk barang barang yang bisa ditrace secara fisik, harganya material dan "not ordinarily interchangeable"

Cost Assumption
❌ During inflation will cause higher ending inventory and lower COGS
✅ WIll give more representative value of ending inventory

Only permitted in US GAAP
❌ under inflation will reflect lower ending inventory and higher COGS -> lower taxable income and net income

Periodic and Perpetual

Perpetual

Important consideration :
✅ under perpetual -> FIFO dan WA tidak berbeda karena as saldo diupdated, bakal sma aja. Makanya analyst ga adjust .
✅ jika harga menurun, LIFO perpetual ending inventory lebih kecil karena yang harganya lebih tinggi ke swap terus sehingga sisa yang harganya lbeih kecil terbaru -> no fixed rule


✅ under periodic bisa beda, karena WA dihitung tiap periode.

LIFO RESERVE
Selisih antara inventory dengan lifo dan fifo untuk bantu analyst adjust.



IMPORTANT FORMULA


1.Ending inventory FIFO = EI Lifo + Lifo reserve (karena EI Lifo lebih kecil, maka harus ditambah)


2. COGS FIFO = Step 1. Hitung COGS LIFO Step 2. HItung perbedaan beginning dan ending inventory (BEgining Inve FIFO = EI FIFO periode sebelumnya, ENding Inv FIFO= Begining FIFO periode setelahnya) ATAU summary,

COGS FIFO = COGS LIFO _- dikurangi KENAIKAN LIFO RESERVE
kalo LIFO reserve turun berarti tandanya negatif, berrati COGS FIFO justru lebih besar


3. change in net income : Jangan lupain net of tax dikali Delta COGS


Inget juga, LIFO rrserve tahun itu adalah akumulasi (gross profit yang lebih rendah) sejak perusahaan menerapkan metode LIFO.
JAdi kalo buat hitung tax saving tinggal tax rate (y-1) x LIFO reserve (y-1) + Tax rate Y x Delta LIFO reserve
Ini cuma breakdown aja


4. change in CFO : ada effect di tax reduction ya
exhibit halaman 343



LIFO reserve will increase when:
✅ Increase price --> karena gap fifo sama lifo makin jauh (P factor)
✅ ketika purchased > sold -> makin nambah layernya (Q factor)

LIFO LIquidation
kebalikan lifo reserve, justru terjadi ketika unit sold> purchased in increasing price. Jadi Q factor ga searah sama P factor


CIri-CIri :
✅ LIFO Reserve turun
✅ penurunan lifo reserve ➡ COGS LIFO rebih rendah dari FIFO --> Gross Profit under LIFO lebih besar dibandingkan fifo.


FORMULA : Sold - Purchased same year x Replacement cost yang terbaru logic : berapa seharusnya dia ga kekikis layernya.



➡ Harganya yang lebih mahal kekikis (layernya ilang)


➡ LIFO RESERVE turun --> COGS FIFO makin mahal/COGS lifo lebih murah --> Gross Profit under LIFO lebih menguntungkan


Sehingga, COGS menjadi lebih rendah (yang keambil Q yang harganya lebih rendah) --> Gross Profit naik (unsustainable)

Things to recall :
Inventory turnover = COGS/Average Inventory
Gross Margin = gross profit / margin
Impact to Financial Ratios -
LIFO resevre dan liquidation formula

Impact to Financial Ratios :


Lower EI --> Asset lower, WC lower,
:cross: Higher COGS --> Lower Equity
✅ Lower Income Tax --> Higher CFO
✅ HIgher debt to equiy

Insight analyst :
Check whether lifo reserve declined (terjadi lifo liquidation) karena intensi manajemen buat naiik gross profit secara insidental. .

Change in inventory valuation --> must be presented restrospectively MIsal 2016- 2018. maka 2016 cummulative impact yang masih practikal.

LC vs NRV : Net realizable value dalah selling price deducted by cost to sell.
✅ reversal only limited to amount of write down. intinya gaboleh lebih tinggi dari historical cost. --> hati hati banget jangan sampe kelebihan recovery.

Under uSGAAP -> Lower cost vs nrv vs market value.
Market value harus berada diantara NRV (Makret value - cost to sell) dan NRV minus normal profit margin.


Jadi MVcant exceed NRV. and no recovery is market value is used.

Under increaisng price condition, LIFO lebih konservatif sehingga lebih jarang ada inventory adjustment dibandingkan lifo.

Key takeaway :
✅ substantial increase in WIP and raw material and FG might indicate higher demand, tapi kalo raw mterial sama WIP declined ya ini lower demand/firm antisipasi ga akan produksi banyak2 dan increase probability dia obsolete di masa mendatang.


✅ bandingin juga sama sales growth company kalo misal sales grotwh slower ada pertanda slower in demand tapi justru accompanied by increase in inventory growth (mesti di breakdwon FInished goods sama WIP/RM)
. tapi hal inis ebaikny diaccompany sama othe rratio juga

longlived asset

Recognition of Fi

Intangible asset

  1. Exchange
    ✅ Fair Value asset acquired
    ✅ fair value asset given up
    ✅ carrying amount asset given up
    Step : remove carrying amount, acquire new @ FV, recognize gain/loss

Case : ✅ pengeluaran untuk support mesin, dikapitalisasi ke mesin, bukan ke gedung karena perlu untuk membuat mesin intended use, tapi tidak menambah benefit dari gedung.

Borrowing cost prior to the completion of asset to be ready for their intended use is capitalized.
for own use --> PPE
for sale --> inventory
Cash flow --> INVESTING ACTIVITIES


✅ additional IFRS only (not US GAAP) intereset revenue acquired borriwed fund can deduct the cots pf asset.

TANGIBLE ASSET

  1. Purchase --> acqured until asset is ready to use as intended (testing, installment, freight)

Recognition criteria:
✅ Identifiable, Controlable, future economic benefit (probable and cost is measured)

  1. Purchased --> sama kaya tangible (dialokasikan based on FV)
  1. Internally Developed IA -->
    ✅ pada saat research phase (original/planned investigation in order to gain insight" --> belum kebaa--> expensed --> CF from Operation
    ✅ pada saat development phase (application of research finding) --> capitalized.setelah product tech feasibility --> investing CF

3.US GAAP selalu di expensed, kecuali software development for sale. --> setelah product tech feasibility

  1. Business Combination
    Kelebihan purchase price di atas fair value identifiable asset dan liabilities --> GOODWILL

Financial Impact : Selama beberapa tahun sama aja, tapi untuk tahun2 awal, yang capitalized Net Income lebih besar di awal, dibandinge xpenseing.
Cash flow juga berbeda antara CFO dan CF investing.


Intinya :
✅ capitalising asset will give profitability enhancing effect selama pembelian asetnya lebih besar dari depre expense.
✅ dampak ke rasio2 keuangan kayak CFO dan Interest coverage

Interest Cost Capitalization

  1. Capitalized incured in Investing cash flow
  1. Interest coverage ratio = jadi lebih besar, karena interest expensenya ke hide di depreciation expense.

✅ MAKING COMPARABLE INTEREST COST


adjusted ratio :
EBIT + AMORTIZATION OF DEFERRED FINANCING COST (artinya beban bunga yang kemarin ke kapitalisasi kan sekarang masuk ke depreciation expense of PPE, makanya dikeluarin / ditambah sehingga menambah income ) --> bener2 nunjukin EBIT tahun itu tanpa dibebani beban bunga tahun itu dari periode sebelumnya.



dibagi


Interest Expense original ditambah interest capitalized (nunjukin berapa sebenernya beban bunga di tahun itu)

Internal Development Cost Capitalization

Internal Development Cost

Analysis :
✅ Making comparable Development cost


✅ Income STatement effect : Net Income

  • dikurangi cost (dimasukin expensenya)
  • ditambah cost yang embedded di amortisasi expense (dikluarin)
    INGET TAX EFFECT

Balance sheet : Harga perolehan aset dikurangi sama cost yang diacapitalized.


CF -> reclass dari investing to operating cash flow.

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SUbsequent : Depreciation and AMmortization

Straight line = HC - Residual VAlue / USeful life
Accelerated method = 100%/useful life ) x 2 = rate x Book Value at the end of period. DONT DEDUCT WITH RESIDUAL VALUE

Component Depreciation: companies are required to diffrentiatie the depreciation of significant component. --> Hitung depresiasi INduk dan KOmponen terpisah.


Insight : setiap pembelian komponnen menambah HP.

Ammortization:
Finite Intangible asset : Yang ada expirationnya
Definite Intangible Asset : NO FORESEEABLE LIMIT TO GENERATE CASH INFLOW -> contoh: minimal cost to rene even dia punya expiration.

Revaluation Model

Fair Value of Asset, thus allowing asset valued greater than histrocial cost.

Step :

  1. If decrease -> goes to income statement, tapi habisin dulu surplus revaluasi sebelumnya.
  2. If increase --> max sebesar decrease, selebihnya masuk ke REvaluation SUrplus - Equity!
  3. Hanya berakhir ketika aset di derecignized, maka dia masuk ke income statement/

Konsep: Selama dipegang, gaboleh akuin gain di I/S, sampe realized diderecognition. Loss boleh ke I/s tapi harus habisin surplus di equity.

Analys should pay attention to:

  1. Motivation of revaluation --> ngaruh ke leverage ratio
  2. Profitability measures --> didefer di awal jadi diakui di akhir (dalam hal diturunin)
  3. Who did the appraisal? How often

Impairment

Impairment = Carrying amount
> Recoverable amount (HIGHER _FV less cost to sell vs Value in Use)

Value in use ; PV of future cash flow

Property Plant and Equipment

  • tidak wajib tahunan
  • Indikasi impairment test : obsolete, perkembangan teknologi, decreasing demand.

US GAAP : Undiscounted Cash flow

Nilai baru = Nilai impairment, new depreciation based

Intangible asset

Definite live --> sama kaya PPE
Indefinite life --> ga amortisasi, tapi tetep di test indikasi impairment

Asset Held For Sale previously classified as PPE --> waktu reklas harus ditest impairment

REVERSAL: when to reverse : recoverable amount is increasing -?? masih ga ngerti ada contohnya.
Reversal impairment cuma boleh reversal LOSS. Gaboleh ada additional kayak revaluation. US GAAP bener2 gaboleh impairment reversal samsek kecuali ASET HELD FOR SALE!

⚠ PENDING ISSUE

Derecognition

Sale : Book value vs sale proceed

Other than sale: 1. abandoned --> No proceeds

Other than sale: exchanged
✅ 1. FV of Asset received, if not
✅ 2. FV of Asset given up, if not , GAIN if FV asset recievd > Book Value asset give up.
✅ 3. Book value -> no gain recorded.

Spin off -> CGU is sold

Analysis Impact

Ratio Impacted : total asset turnover = Revenue/ Average Asset --> greater, greater efficiency karena smaller asset generate greater revenue.

Age of Asset : Logic

  1. Umur aset yang sudah lewat (age of aasset ) : acc depre/depre per tahun
  2. Umur aset sisa : Net Asset / Annual Depre
  3. Total umur aset = 1 + 2 atau Historical cost

ideally exclude land
insight : bandingin apakah dia udah tua

CAPEX/Depreciation expense : Seberapa sering perusahaan replace/maintain productivitynya. --> kalo lebih dari 100%, maka dia replacing asset at faster rate.

Investment Property

PURPOSE : earning rental or capital apprecaition

Valuation : COST MODEL vs Fair Value model
Inget: Revaluation model beda sama FV model, di FV model kenaiakn harga aset tidak di cap seperti di revaluation model. --> masuk ke net income.

Valuation Issue:

  1. Investment property at COST model --> to Inventory : no issue
    2.Investment property at FV --> to inventory : FV terakhir akan mejadi carrying amount.
  2. Dari owner occpuied ke Investment Property denggan FV --> treated like revaluation (?)
  3. Dari inventory ke IP --> Ada gain/loss.
    Konsep : kalo masuk ke IP, ikut FV.

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Inget disini penting kalo LIFO reserve naik berarti gap FIFO makin jauh. Ending Inventory FIFO = Ending Inventory LIFO + LIFO RESERVE (naik)

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karena EI naik, lebih porfitable FIFO.
COGS FIFO = COGS LIFO - Kenaikan LIFO Reserve

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Non Current Liabilities

Initial Recignition

Yield Curve`

Yield Curve Normal

Inverted Yield Curve

bull flattener is a yield-rate environment in which long-term rates are decreasing more quickly than short-term rates.

A bull steepener is a change in the yield curve caused by short-term interest rates falling faster than long-term rates, resulting in a higher spread between the two rates.



FED expected to lower interest rates

A bear steepener is the widening of the yield curve caused by long-term interest rates increasing at a faster rate than short-term rates.


A bear steepener occurs when there's a larger spread or difference between short-term bond rates and long-term bond rates–as long as it's due to long-term rates rising faster than short-term rates..

bear flattener refers to the convergence of interest rates along the yield curve as short term rates rise faster than long term rates and is seen as a harbinger of an economic contraction.


bear flattener is seen as a negative for the stock market

Bull refer to economic condition --> growth


Bear --> Overheating economics, negative outlook for economics.