MGAC01H3 Lecture Notes - Brm P83, Gross Profit, Income Statement
6 May 2014
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Learning goals: recognition - understand key inventory concerns, measurement - know what costs are included in inventory and how cost formulas work, be able to estimate inventory amounts using the gross profit method. Learning goal 1: recognition - understand key inventory concerns. A critically important asset items that are held for sale to make a profit. Management is very interested in inventory quantities in order to prevent stocking up on excessive and un-saleable inventories or being caught without items for sale. Since inventory amounts affect balance sheet and income statement amounts, they are important in terms of management bonus contracts linked to income earned, and bank covenants requiring specific current or debt to equity ratios. Inventories are valued at lower of cost and net realizable value. Learning goal 2: measurement - know what costs are included in inventory and how cost formulas work.
