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Lecture 8

RSM220H1 Lecture 8: Week 8 Inventory
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Department
Rotman Commerce
Course Code
RSM220H1
Professor
Amy Kwan

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Description
Week 8: Inventory March 12, 2018 Is a current asset Merchandising company has: One inventory account, Merchandise Inventory Cost of inventory sold transferred to COGS Manufacturing company has: Raw materials, work in progress, finished goods Raw materials, direct labor, and manufacturing overhead make up work in progress Work in progress flows to finished goods Expensed to Cost of Goods Manufactured Definition 1. Held for sale in ordinary course of business 2. In the process of production for such sale 3. In the form of materials or supplies to be consumed in the production process or in the rendering of services Included in inventory Generally determined by legal title 1. Goods in transit if f.o.b. destination 2. Goods out on consignment 3. Goods sold under buyback agreements 4. Good sold with high rates of return that cannot be estimated Purchase contracts Commitment to purchase inventory but legal title has not yet been passed to buyer Noncancellable purchase contracts disclosed in notes if material but are not recorded Record loss provision for onerous contracts Unavoidable costs to complete contract are higher than expected benefits Accounting for inventory 1. Perpetual system 2. Periodic system Cost formulas 1. Specific identification 2. Weighted average 3. FIFO Measurement Recorded of lower of cost and NRV Initially recorded at cost NRV is estimated selling price less costs of sale Loss if NRV less then cost becomes part of COGS
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