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Lecture 15

MGAB01 Lecture 15: Chapter 8 notes


Department
Financial Accounting
Course Code
MGAB01H3
Professor
Liang Chen
Lecture
15

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Chapter 8:
Reporing and Interpreing Cost of Sales and Inventory
Daniel Leather
Inventory: tangible property held for sale in the normal course of business or used in
producing goods or services for sale
Merchandise Inventory: Includes goods held for resale in the ordinary course of business
Raw Materials Inventory: includes items acquired for the purpose of processing into
finished goods
Work-in-process inventory: includes goods in the process of being manufactured
Finished goods inventory: includes manufactured goods that are complete and available
for sale
Inventory Costing Methods:
Price of goods change
Generally accepted inventory costing methods are available to determine cost of sales:
Specific identification: identifies the cost of then specific item that was sold
oIFRS prohibit this method large # of inventory items that are interchangeable
(i.e., jackets of same size & style)
oSimilar items in stock; fine jewellery, fine art objects, luxury cars
oPurchase cost of each item by: coding purchase cost on each unit before placing
in stock OR keeping separate record of unit and identifying w/ serial #
First-In, First Out (FIFO): Assumes that the oldest units (1st costs in) are the 1st units sold
oFIFO allocates oldest unit costs to cost of sales and newest unit costs to ending
inventory
Perpetual inventory system:
Cost of sales for transaction continuously ton update inventory records
Cost Flow Assumptions:
Most inventory acted for using 1 or 2 cost flow assumptions
Choice of an inventory costing method is NOT based on physical flow of goods on & off
shelves
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