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101
Ms. Beams HermosillaInstructor
Opening Prayer – Valerie Dagohoy
Energizer– All
Topics
Inventories Rhinalyn Inventory Valuation
Biological AssetValerie
Gross profit
Retail Inventory MethodJessa Mae
National Anthem - All Introduction of participants – Jessa Mae Buaco
Guitarist– Jessa Mae Buaco Introduction of guest speaker – Rhinalyn Oraiz
Operator Shayne Judie Ann, Torres
Inventories
Inventories -are assets which held for sale of ordinary business by the process of production for such sale the form of materials or supplies
to be consumed in the production process the rendering of service.
Classes of inventories
• Trading concern• Manufacturing
Kinds of Manufacturing concern
• Finished good• Goods in process• Raw material
Consigned goods
A consigned is a methods of marketing goods which
called consignor transfer physical certain good to
agent called consignee who sell them of the owner
behalf..
Accounting for inventories
2 system in accounting for inventories
• Periodic system • Perpetual system
Trade discounts and cash discount
Trade discount- are deduction from the list of catalog price in order to arrive at the invoice price which is the amount actually charged to the buyers. Thus trade discount are not recorded.
Cash discount- are deduction from the invoice price when payment is made within the discount period. The purpose of cash is to encourage the goods may be resold.
Illustrationlist price 500,000 less 5-10% with credit terms of 5/10, n/30.
List price 500,000First trade discount (5%x500,000) (25,000) 475,000Second trade discount (10%x475,000) (47,500)Invoice price 427,500Cash discount (5%x427,500) ( 21,375 ) Payment within the discount period 406,125
The journal entry to record the purchased is.
Purchased 427,500 Accounts payable 427,500
Note. that the trade discount are not recorded. The journal entry to record the payment of the invoice within the discount period is.
Methods of recording purchases1. Gross method-purchases and accounts payable are recorded at gross.2. Net method-purchases and accounts payable are recorded at net.
Illustration-Gross method1.Purchases on account, 150,000 2/10, n/30.Purchases 150,000 Accounts payable 150,0002.Assume payment is made within the discount period.Accounts payable 150,000 cash 147,000 purchases discount 3,0003.Assume payment is made beyond the discount period.Accounts payable 150,000 cash 150,000
Illustration-Net method1.Purchased on account, 350,000, 8/10, n/30.Purchases 322,000 accounts payable 322,0002.Asssume payment is made within the discount period.Accounts payable 322,000 cash 322,0003.Assume is made beyond the discount period.Accounts payable 322,000Purchases discount loss(other expense) 28,000 cash 350,0004.Assume it is the end of accounting period, no payment is and made the discount period has expired.Purchases discount lost 28,000 accounts payable 28,000
Problem 1
Mako Company provided the following data at year-end.
Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale contract. 100,000
Items in receiving department returning by customer in the condition. 50, 000
Items ordered and in the receiving department invoice nor received 400,000
Items ordered invoice receive but goods not receive freight in paid in seller. 300,000
Items shipped today invoice mailed , FOB shipping point 250,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items receiving department , refused by us because of damage 180,000
Items included in count, damaged and usable 50,000
Items in the shipping department 250,000
Required.Compute the correct amount of inventory.
4,000,000
(100,000)
Answer
50,000
400,000
X
X
150,000
200,000
800,000 X
(50,000)
250,000
5,700,000
Question;
Which term represent the deduction from the invoice price of purchased goods granted by suppliers for early payment.a. Sales discountb. Purchases discountc. Trade discountd. Purchases return and allowance
VALUATION
Cost of formulas;
- The cost of inventories shall be determined by using ;
a. First in, First out (FIFO)
b. Weighted average
- If inventory are sold , the carrying amount will be recognized as expense . Related as revenue as determined.
FIRST IN, FIRST OUT (FIFO)The first merchandise acquired is the first
merchandise sold.
To get the weighted average , add the purchases at the beginning inventory
and divide it in a total cost of purchased to get the weighted average
unit cost. The weighted average unit cost is multiplied by the available units on hand to obtain the inventory value.
Weighted average - periodic
ExamplesExtreme Company showed the following
information: Units Unit cost Total Cost
January 1 Beginning 10,000 40 400,000 31 Sale 5,000
April 1 purchase 15,000 50 750,000July 31 Sale 18,000 October 1 Purchase 25,000 60 1,500,000December 31 Sale 12,000
REQUIRED:Compute the cost of the ending inventory and cost of sales using:
Weighted Average 15,000 53 795,000(2,650,000/50,000)
Units Unit cost Total CostJanuary 1 Beginning 10,000 40 400,000 31 Sale 5,000April 1 purchase 15,000 50 750,000July 31 Sale 18,000 October 1 Purchase 25,000 60 1,500,000December 31 Sale 12,000
FIFO
Inventory Jan. 1 400,000 Purchases 2,250,000Goods available 2,650,000 Less: Inventory dec.31 900,000 Cost of sales 1,750,000
Cost of weighted Average –perpetualJanuary 31 sale 200,000July 31 sale 855,000Dec. 31 sale 208,480Total Cost of sale 1,763,480 PROBLEM
Units Unit Cost Total CostFIFO October 1 15,000 60 900,000
REQUIRED:Compute the cost of the ending inventory and cost of sales using:
FIFO – periodic Weighted average Moving average
Weighted Average
400,000 2,250,000
2,650,000 795,000
1,855,000
Ending inventory
Units Unit Cost Total Cost
Question;
The cost of inventories shall be measured using;a. FIFOb. Average methodc. LIFOd. Either FIFO or average method
BIOLOGICAL ASSETS
Are those who has life like living plants and animals.
Is the harvested product
‘’Agricultural produce’’
‘’Government grant related to biological asset’’
‘’Biological assets’’
- If the government grant is complete and absolute related to biological asset and been measured at fair value, less cost of disposal. Income shall be determined when grant
become receivables.- If the government grant is conditional or dependent upon a condition, The grant shall
determined as income when the attaching conditions to the grant are met.
PAS 20 on government grant is applied when a biological asset measured at cost less accumulated depreciation and impairment loss.
Examples of biological assets
Biological AssetAgricultural produce
Produce after harvest
1. Sheep2. Tress in plantation3. Plant4. Dairy cattle5. Pigs6. Bushes7. Vines8. Fruit trees
At the end of the period of biological asset shall be measured at fair value less cost of disposal
Fair value is the amount for which an asset could be exchange between knowledgeable, willing parties in an arms length transaction.
Cost of disposal is relating to the cost of an asset that usually on in disposition.
Is measurable at fair value less cost of disposal at the point of harvest.
Fair value of Agricultural produce;
Diary cattle P 3,000,000Beef cattle 5,000,000Sheep 2,000,000 P 10,000,000
Problem
Central farm corporation reported the following lists of biological assets and agricultural produce for the year ended dec. 31, 2014.
Assets Fair value
Diary cattle 3,000,000 Beef cattle 5,000,000 Sheep 2,000,000 Calves on diary 1,000,000 Calves on beef cattle 1,500,000 Lambs 800,000 Milk on diary cattle 500,000 Carcass on beef cattle 600,000 Wool 400,000
Question 1: What amount of biological asset should central farm company in its dec. 31, 2014 statement of financial position? Answer: 13,300,000
Question 2: What amount should Central farm company report as inventory related to the above biological assets?
Answer: 1,500,000
Mature biological assets:
Immature biological assets:Calves on diary cattle 1,000,000Calves on beef cattle 1,500,000Lambs 800,000 3,300,000Total fair value of biological asset 13,300,000
Milk on diary cattle P 500,000Carcass on beef cattle 600,000Wool 400,000Total P 1,500,000
Solution:
Question;
Agricultural produce is measured at;a. Fair valueb. Fair value less cost of disposal at the point of
harvestc. Net realizable valued. Net realizable value less normal profit margin
GROSS PROFIT
Based on the assumption that the rate of gross profit and therefore the ratio of the cost of goods sold to net sales is relatively constant
from period to period.
b. Theft of the merchandise has occurred and the amount of inventory is required for
insurance purposes.
Common Reasons of making an estimate of the cost of the goods on hand:
a. The inventory is destroyed by the fire and other catastrophe or…
C. A physical count of the goods on hand is made and it is necessary to prove the correctness of such count by
making an estimate.
D. Interim financial statements are prepared and a physical count of the goods on hands is not necessary
BASIC FORMULA UNDER THE GROSS PROFIT METHOD
GOODS AVAILABLE FOR SALE (GAS) X XLess: Cost of Sale X X Ending Inventory X X
GOODS AVAILABLE FOR SALE X X
GOODS AVAILABLE FOR SALE
Beginning inventory X XPurchases X XAdd: Freight in X X Total X XLess: Purchases return, allowance and discount X X X X
GROSS PROFIT RATE ON COST TO GROSS PROFIT ON SALES
= If the gross profit rate on cost is 45% , the gross profit on sales computed as follows:
NET SALES 145%COST OF SALE 100%GROSS PROFIT ON COST 35%
GROSS ROFIT ON SALES(45/145) 31%
GROSS PROFIT RATE ON SALES TO GROSS PROFIT ON COST
= If the gross profit on sales is 40% the gross profit on cost is computed as follows:
NET SALES 100%COST OF SALES 60%GROSS PROFIT ON SALES 40%
GROSS PROFIT ON COST(40/60) 66.67%
Avarice Company has a recent gross profit history of 40% of net sales. The following data are available from the accounting records for the three months ended March 31, 2014.
Inventory- January 1 650,000Purchases 3,20,0000Net Sales 4,500,000Purchase return 75,000Freight in 50,000
Using the gross profit method , what is the estimated cost of the inventory on March 31,2014?
GOODS AVAILABLE FOR SALE 3,825,000LESS: COST OF SALES NET SALES 4,500,000 MULTIPLY COST RATIO 60% 2,700,000ENDING INVENTORY 1,125,000
ANSWER:
Avarice Company has a recent gross profit history of 40% of net sales. The following data are available from the accounting records for the three months ended March 31, 2014.
Inventory- January 1 650,000Purchases 3,20,0000Net Sales 4,500,000Purchase return 75,000Freight in 50,000
Using the gross profit method , what is the estimated cost of the inventory on March 31,2014?
PROBLEM
Retail Inventory Method
The use of the retail inventory method required that record to kept which must show the following.
a) Beginning inventory valued at cost and at retailed price.b) Purchased during the period at cost and at retail price.
c) Adjustments to the original retail price such as additional mark up, mark up cancelation, mark down and mark down cancelation.
d) Other adjustment such as department transfer, breakage, shrinkage, theft, damaged goods and employees discount.
Basic Formula:
Goods available for sale at retail or selling price XXLess. Net sale (Gross sale minus sales return only) XXEnding inventory at selling price XXMultiply by cost ratio XXEnding inventory at cost XX
Cost ratio= Goods available for sale at cost Goods available for sale at selling price
Cost RetailBeg. Inventory 530,000 900 ,000 Purchases 6,080,000 8,700,000Purchases discount (85,000) Freight in 105,000Mark up 600,000GAS-conservation 6,630,000 10,200,000Cost ratio (6,630,000/10,200,000)70. 5%Less: Sales (8,600,000) Ending inventory retail Conservative cost ( 800,000X65%) P 520,000