© prentice-hall of india private limited, 2004. all rights reserved.1 financial accounting: a...
TRANSCRIPT
© Prentice-Hall of India Private Limited, 2004. All rights reserved. 1
Financial Accounting:A Managerial Perspective
Second Edition
Prepared byR. NarayanaswamyIndian Institute of Management Bangalore
© Prentice-Hall of India Private Limited, 2004. All rights reserved. 2
Inventories
Chapter 7
© Prentice-Hall of India Private Limited, 2004. All rights reserved. 3
Inventory Valuation and Income Measurement
Defining inventories Goods meant for sale or for further processing
Types of inventories Raw materials Work in progress Finished goods
Matching inventory costs with revenues Effect of inventory errors
Chapter 7
© Prentice-Hall of India Private Limited, 2004. All rights reserved. 4
Determining the Physical Inventory
Importance of taking physical inventory Procedure for taking inventory Goods in transit
Shipping terms and passing of property
Goods on consignment
Chapter 7
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Pricing the Inventory Cost basis
Inventoriable costs or product costs Period costs
Inventory costing methods Physical flow and cost flow Specific identification First-in, first-out Last-in, first-out Weighted-average cost
Chapter 7
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Pricing the Inventory continued Comparison of alternative methods
Managerial motivations in selection
Other inventory cost methods Standard cost Base stock
Inventory profits The lower-of-cost or market (LCM) rule The conservatism principle and prudence The consistency principle
Chapter 7
© Prentice-Hall of India Private Limited, 2004. All rights reserved. 7
Estimating Inventory Value
When is inventory value estimated Methods of estimating inventory value Retail inventory method
Retail to cost ratio Assumptions
Gross profit method Gross profit ratio Assumptions
Chapter 7
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Perpetual Inventory System
What is the perpetual inventory system? How is it different from the periodic
inventory system? Recording accounting entries Maintaining perpetual inventory records Internal control and perpetual inventory
system
Chapter 7
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Accounting for Manufacturing Costs
Cost of goods manufactured Raw materials consumed Direct labour Manufacturing overhead
Direct costing and absorption costing Cost of goods sold
Chapter 7
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Reporting Inventories under the Companies Act
Companies (Auditor’s Report) Order 2003 Periodical physical verification of
inventory Adequacy of physical verification Maintenance of proper records for
inventories Adequacy of internal control procedure
Chapter 7
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Financial Analysis of Inventories
Inventory turnover ratio Interpreting the inventory turnover ratio in
financial analysis
Chapter 7