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CHAPTER 2 : ACCOUNTING FOR INVENTORIES - Coggle Diagram
CHAPTER 2 :
ACCOUNTING
FOR
INVENTORIES
Ammount of cost to be recognized of an asset
Determination of cost its subsequent recognition as an expenses
Provide the guidance on the cost that are used to assign cost to inventories
Nature of Inventories under MFRS 102
According to MFRS 102, Inventories are asset
a. held for sale in the ordinary course of business
b. In the process of production for such sale
c. In the form of materials or supplies to be consumed in the production process or in the rendering of services
Types Of Inventories
Manufacturing Concerns
a. Raw materials
b. Work-in-progress
c. Finished goods
Trading Concerns
a. Finished goods
Services Concerns
a. Tangible Assets
Cost Of Inventories
Purchased
Cost
Purchased Price + Non-recoverable taxes
Other Cost
Cost of bringing the inventories at particular location Ex. Freight charges loading unloading charges
Cost of Conversion
Cost of conversion RM in FG Ex. Labpour, Production Overhead + Fixed and Variables overheads
Inventory
Accounting
System
PERIODIC
i. The amount appears is not updated when purchases of merchandise are made
ii. Commonly updated
iii. Adjusted only once – at the end of the year
iv. Show only the cost of inventory
v. Occasional physical count to determine the ending inventory balance and the cost of goods sold
PERPETUAL
i. Continual track of inventories balances
ii. Inventory increased with the cost of merchandise purchased
iii. Inventories reduced by the cost of merchandise that have been sold
iv. Increase in inventory everytime purchased made
v. Reduce in inventory whenever sales occured
COST FORMULA
Average cost method (AVCO)
calculate the cost of ending inventory & cost of goods sold
weighted Average cost = (Total cost of inventory)/(Total units in inventory)
First in First out (FIFO)
assume that inventory purchased first is sold first
cost of latest purchases