war22e_ch07 revisi
Post on 09-Apr-2018
229 Views
Preview:
TRANSCRIPT
-
8/8/2019 War22e_Ch07 revisi
1/103
Click to edit Master title style
1
1
7
InventoriesInventories
-
8/8/2019 War22e_Ch07 revisi
2/103
Click to edit Master title style
2
2
1. Describe the importance of control
over inventory.2. Describe three inventory cost flow
assumptions and how they impact the
income statement and balance sheet.
After studying this chapter, you should
be able to:
-
8/8/2019 War22e_Ch07 revisi
3/103
Click to edit Master title style
3
3
3. Determine the cost of inventory under the
perpetual system, using the FIFO, LIFO, andaverage cost methods.
After studying this chapter, you should
be able to:
4. Determine the cost of inventory under the
periodic system, using the FIFO, LIFO, and
average cost methods.5. Compare and contrast the use of the three
inventory costing methods.
-
8/8/2019 War22e_Ch07 revisi
4/103
Click to edit Master title style
4
4
6. Describe and illustrate the reporting of
merchandise inventory in the financialstatement.
After studying this chapter, you should
be able to:
7. Estimate the cost of inventory using the
retail method and the gross profit
method.
-
8/8/2019 War22e_Ch07 revisi
5/103
Click to edit Master title style
5
5
Describe the importance of
control over inventory.
Objective 1Objective 1
7-1
-
8/8/2019 War22e_Ch07 revisi
6/103
Click to edit Master title style
6
6
7-1
Two primary objectives of control
over inventory are:1) Safeguarding the inventory, and
2) Properly reporting it in the
financial statements.
-
8/8/2019 War22e_Ch07 revisi
7/103
Click to edit Master title style
7
7
7-1
Controls over inventory
include developing and usingsecurity measures to prevent
inventory damage or customer
or employee theft.
-
8/8/2019 War22e_Ch07 revisi
8/103
Click to edit Master title style
8
8
7-1
To ensure the accuracy of the
amount of inventory reported inthe financial statements, a
merchandising business should
take aphysical inventory.
-
8/8/2019 War22e_Ch07 revisi
9/103
Click to edit Master title style
9
9
Describe three inventory costflow assumptions and how they
impact the income statement
and balance sheet.
Objective 2Objective 2
7-2
-
8/8/2019 War22e_Ch07 revisi
10/103
Click to edit Master title style
10
1010
7-2Inventory Costing Methods
-
8/8/2019 War22e_Ch07 revisi
11/103
Click to edit Master title style
11
1111
7-2
(Continued)
-
8/8/2019 War22e_Ch07 revisi
12/103
Click to edit Master title style
12
1212
7-2
(Continued)
-
8/8/2019 War22e_Ch07 revisi
13/103
Click to edit Master title style
13
1313
7-2
(Concluded)
-
8/8/2019 War22e_Ch07 revisi
14/103
Click to edit Master title style
14
14
250
200
150
100
50
0FIFO Average Specific
Indentification
Inventory Costing Methods In Indonesia 7-2
-
8/8/2019 War22e_Ch07 revisi
15/103
Click to edit Master title style
15
1514
400
300
200
100
0
371
299
130
FIFO LIFO Average cost
Inventory Costing Methods In USA 7-2
Number of firms
(> $1B Sales)
-
8/8/2019 War22e_Ch07 revisi
16/103
Click to edit Master title style
16
16
7-2-
Example Exercise 7-1
The three identical units of Item QBM are purchased during
February, as shown below.
Feb. 8 Purchase 1 Rp45,000
15 Purchase 1 48,00026 Purchase 1 51,000
15
Item QBM Units Cost
Assume that one unit is sold on February 27 for Rp70,000.
Determine the gross profit for February and ending inventory on
February 28 using (a) first-in, first-out (FIFO); (b) last-in, first-out
(LIFO); and (c) average cost methods.
Total 3 Rp144,000
Average cost per unit Rp48,000 (Rp144,000 3 units)
-
8/8/2019 War22e_Ch07 revisi
17/103
Click to edit Master title style
17
17
Follow My Example 7-1
16
7-2
For Practice: PE 7-1A, PE 7-1B
Gross Profit Ending Inventory
(a) First-in, first-out (FIFO): Rp25,000 (Rp70,000 Rp45,000) Rp99,000 (Rp48,000 Rp51,000)
(b) Last-in, first-out (LIFO): Rp19,000 (Rp70,000 Rp51,000) Rp93,000 (Rp45,000 + Rp48,000)
(c) Average cost: Rp22,000 (Rp70,000 Rp48,000) Rp96,000 (Rp48,000 x 2)
$144/3 units
-
8/8/2019 War22e_Ch07 revisi
18/103
Click to edit Master title style
18
18
Determine the cost ofinventory under the perpetual
inventory system, using
FIFO, LIFO, and averagecost methods.
Objective 3Objective 3
7-3
-
8/8/2019 War22e_Ch07 revisi
19/103
Click to edit Master title style
19
1918
On January 1, the firm had 100 units of
Item 127B that cost Rp20,000 per unit.
7-3FIFO Perpetual
Item
127BUnits Cost
Jan. 1 Inventory 100 Rp20,000
-
8/8/2019 War22e_Ch07 revisi
20/103
Click to edit Master title style
20
2019
7-3FIFO Perpetual
On January 4, the firm sold 70 units
of 127B at Rp30,000 each.
Item
127BUnits Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
-
8/8/2019 War22e_Ch07 revisi
21/103
Click to edit Master title style
21
21
7-3FIFO Perpetual
On January 22, the firm sold twenty
units at $30.
4 Accounts Receivable 2 100 000
Sales 2 100 000
4 Cost of Merchandise Sold 1 400 000
Merchandise Inventory 1 400 000
On January 4, the firm sold 70 units
of 127B at Rp30,000 each.
20
-
8/8/2019 War22e_Ch07 revisi
22/103
Click to edit Master title style
22
2221
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
4 70 20 1,400 30 20 600
7-3FIFO Perpetual
Jan. 1 100 20 2,000
The cost was in Rp000
-
8/8/2019 War22e_Ch07 revisi
23/103
Click to edit Master title style
23
2322
On January 10, the firm purchased
80 units at Rp21,000 each.
7-3FIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
-
8/8/2019 War22e_Ch07 revisi
24/103
Click to edit Master title style
24
2423
10 Merchandise Inventory 1 680 000
Accounts Payable 1 680 000
On January 10, the firm purchased
80 units at Rp21,000 each.
7-3FIFO Perpetual
-
8/8/2019 War22e_Ch07 revisi
25/103
Click to edit Master title style
25
2524
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
7-3FIFO Perpetual
The cost was in Rp000
-
8/8/2019 War22e_Ch07 revisi
26/103
Click to edit Master title style
26
2625
On January 22, the firm sold 40 units
for Rp30,000 each.
7-3FIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
-
8/8/2019 War22e_Ch07 revisi
27/103
Click to edit Master title style
27
27
7-3FIFO Perpetual
On January 22, the firm sold twenty
units at $30.
22 Accounts Receivable 1 200 000
Sales 1 200 000
22 Cost of Merchandise Sold 810 000
Merchandise Inventory 810 000
On January 22, the firm sold 40 units
for Rp30,000 each.
26
-
8/8/2019 War22e_Ch07 revisi
28/103
Click to edit Master title style
28
2827
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 30 20 600
10 21 210 70 21 1,470
7-3FIFO Perpetual
Of the forty sold, thirty are considered to be from
those acquired at Rp20,000 each. The other ten are
considered to be from the January 10 purchase.
The cost was in Rp000
-
8/8/2019 War22e_Ch07 revisi
29/103
Click to edit Master title style
29
29
On January 28, the firm sold 20
units at Rp30,000 each.
7-3FIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
28 Sale 20
28
-
8/8/2019 War22e_Ch07 revisi
30/103
Click to edit Master title style
30
3029
7-3FIFO Perpetual
28 Accounts Receivable 600 000
Sales 600 000
28 Cost of Merchandise Sold 420 000
Merchandise Inventory 420 000
On January 28, the firm sold 20
units at Rp30,000 each.
-
8/8/2019 War22e_Ch07 revisi
31/103
Click to edit Master title style
31
3130
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 30 20 600
10 21 210 70 21 1,470
28 20 21 420 50 21 1,050
7-3FIFO Perpetual
Unit Cost and Total Cost is in Rp000
-
8/8/2019 War22e_Ch07 revisi
32/103
Click to edit Master title style
32
3231
Item
127BUnits Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
28 Sale 20
30 Purchase 100 22,000
7-3FIFO Perpetual
On January 30, purchased ten additional
units of Item 127B at Rp22,000 each.
-
8/8/2019 War22e_Ch07 revisi
33/103
Click to edit Master title style
33
3332
On January 30, purchased ten additional
units of Item 127B at Rp22,000 each.
7-3FIFO Perpetual
30 Merchandise Inventory 2 200 000
Accounts Payable 2 200 000
-
8/8/2019 War22e_Ch07 revisi
34/103
Click to edit Master title style
34
3433
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 30 20 600
10 21 210 70 21 1,470
28 20 21 420 50 21 1,050
30 100 22 2,200 50 21 1,050
100 22 2,200
7-3FIFO Perpetual
Unit Cost and Total Cost is in Rp000
-
8/8/2019 War22e_Ch07 revisi
35/103
Click to edit Master title style
35
3534
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 30 20 600
10 21 210 70 21 1,470
28 20 21 420 50 21 1,050
30 100 22 2,200 50 21 1,050
100 22 2,200
7-3FIFO Perpetual
Cost of merchandise sold for
January is Rp2,630,000.Unit Cost and Total
Cost is in Rp000
-
8/8/2019 War22e_Ch07 revisi
36/103
Click to edit Master title style
36
36
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,000
4 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 30 20 600
10 21 210 70 21 1,470
28 20 21 420 50 21 1,050
30 100 22 2,200 50 21 1,050
100 22 2,200
7-3FIFO Perpetual
January 31, inventory is Rp3,250,000
(Rp1,050,000 + Rp2,200,000)35
The cost was in Rp000
-
8/8/2019 War22e_Ch07 revisi
37/103
Click to edit Master title style
37
37
7-3-
Example Exercise 7-2
Beginning inventory, purchases, and sales for Item ER27
are as follows:
Nov. 1 Inventory 40 units at Rp5,000
5 Sale 32 units
11 Purchase 60 units at Rp7,000
21 Sale 45 units
36
Assuming a perpetual inventory system and the first-in,
first-out (FIFO) method, determine (a) the cost of themerchandise sold for the November 21 sale and (b) the
inventory on November 30.
-
8/8/2019 War22e_Ch07 revisi
38/103
Click to edit Master title style
38
38
Follow My Example 7-2
37
7-3
For Practice: PE 7-2A, PE 7-2B
a) Cost of merchandise sold:
8 units @ Rp5,000 Rp40,000
37 units @ Rp7,000 259,000
45 units Rp299,000
b) Inventory, November 30:
Rp161,000 = (23 units x Rp7,000)
-
8/8/2019 War22e_Ch07 revisi
39/103
Click to edit Master title style
39
3938
On January 1, the firm had 100 units of
Item 127B that cost Rp20,000 per unit.
7-3LIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
-
8/8/2019 War22e_Ch07 revisi
40/103
Click to edit Master title style
40
4039
7-3LIFO Perpetual
On January 4, the firm sold 70 units
of 127B at Rp30,000 each.
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
-
8/8/2019 War22e_Ch07 revisi
41/103
Click to edit Master title style
41
41
7-3LIFO Perpetual
On January 22, the firm sold twenty
units at $30.
4 Accounts Receivable 2 100 000
Sales 2 100 000
4 Cost of Merchandise Sold 1 400 000
Merchandise Inventory 1 400 000
On January 4, the firm sold 70 units
of 127B at Rp30,000 each.
40
-
8/8/2019 War22e_Ch07 revisi
42/103
Click to edit Master title style
42
4241
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
4 70 20 1,400 30 20 600
7-3LIFO Perpetual
Jan. 1 100 20 2,000
The unit cost and total cost is in Rp000
-
8/8/2019 War22e_Ch07 revisi
43/103
Click to edit Master title style
43
4342
On January 10, the firm purchased
80 units at Rp21,000 each.
7-3LIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
44
-
8/8/2019 War22e_Ch07 revisi
44/103
Click to edit Master title style
44
4443
10 Merchandise Inventory 1 680 000
Accounts Payable 1 680 000
On January 10, the firm purchased
80 units at Rp21,000 each.
7-3LIFO Perpetual
45
-
8/8/2019 War22e_Ch07 revisi
45/103
Click to edit Master title style
45
4544
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
7-3LIFO Perpetual
The unit cost and total cost is in Rp000
46
-
8/8/2019 War22e_Ch07 revisi
46/103
Click to edit Master title style
46
4645
On January 22, the firm sold 40 units
for Rp30,000 each.
7-3LIFO Perpetual
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
47
-
8/8/2019 War22e_Ch07 revisi
47/103
Click to edit Master title style
47
47
7-3LIFO Perpetual
On January 22, the firm sold twenty
units at $30.
22 Accounts Receivable 1 200 000
Sales 1 200 000
22 Cost of Merchandise Sold 840 000
Merchandise Inventory 840 000
On January 22, the firm sold 40 units
for Rp30,000 each.
46
48
-
8/8/2019 War22e_Ch07 revisi
48/103
Click to edit Master title style
48
4847
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
10 80 21 1,680 30 20 600
80 21 1,680
22 40 21 840 30 20 600
40 21 840
7-3LIFO Perpetual
All of the 40 sold are considered to be fromthe January 10 purchase.
The unit cost and total cost is in Rp000
49
-
8/8/2019 War22e_Ch07 revisi
49/103
Click to edit Master title style
49
49
On January 28, the firm sold 20
units at Rp30,000 each.
7-3LIFO Perpetual
48
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
28 Sale 20
50
-
8/8/2019 War22e_Ch07 revisi
50/103
Click to edit Master title style
50
5049
7-3LIFO Perpetual
28 Accounts Receivable 600 000
Sales 600 000
28 Cost of Merchandise Sold 420 000
Merchandise Inventory 420 000
On January 28, the firm sold 20
units at Rp30,000 each.
51
-
8/8/2019 War22e_Ch07 revisi
51/103
Click to edit Master title style
51
5150
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
28 20 21 420 30 20 600
20 21 420
7-3LIFO Perpetual
22 40 21 840 30 20 600
40 21 840
10 80 21 1,680 30 20 600
80 21 1,680
All of the 20 sold are considered to be from
the January 22 purchase.
The unit cost and total cost is in Rp000
52
-
8/8/2019 War22e_Ch07 revisi
52/103
Click to edit Master title style
52
5251
Item 127B
Units Cost
Jan. 1 Inventory 100 Rp20,000
4 Sale 70
10 Purchase 80 21,000
22 Sale 40
28 Sale 20
30 Purchase 100 22,000
7-3LIFO Perpetual
On January 30, the firm purchased one hundred
additional units of Item 127B at Rp22,000 each.
53
-
8/8/2019 War22e_Ch07 revisi
53/103
Click to edit Master title style
53
5352
On January 30, the firm purchased one hundred
additional units of Item 127B at Rp22,000 each.
7-3LIFO Perpetual
30 Merchandise Inventory 2 200 000
Accounts Payable 2 200 000
54
-
8/8/2019 War22e_Ch07 revisi
54/103
Click to edit Master title style
54
5433
7-3LIFO Perpetual
53
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
28 20 21 420 30 20 600
20 21 420
7-3LIFO Perpetual
22 40 21 840 30 20 600
40 21 840
10 80 21 1,680 30 20 600
80 21 1,680
30 100 22 2,200 30 20 600
20 21 420
100 22 2,200
The unit cost and total cost is in Rp000
55
-
8/8/2019 War22e_Ch07 revisi
55/103
Click to edit Master title style
55
5533
7-3LIFO Perpetual
54
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
28 20 21 420 30 20 600
20 21 420
7-3LIFO Perpetual
22 40 21 840 30 20 600
40 21 840
10 80 21 1,680 30 20 600
80 21 1,680
30 100 22 2,200 30 20 600
20 21 420
100 22 2,200Cost ofmerchandise sold Rp2,660,000Cost ofmerchandise sold Rp2,660,000
The unit cost and total cost is in Rp000
56
-
8/8/2019 War22e_Ch07 revisi
56/103
Click to edit Master title style
56
5633
7-3LIFO Perpetual
55
Item 127B
Purchases Cost of Mdse. Sold Inventory Balance
Unit Total Unit Total Unit Total
Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Jan. 1 100 20 2,0004 70 20 1,400 30 20 600
28 20 21 420 30 20 600
20 21 420
7-3LIFO Perpetual
22 40 21 840 30 20 600
40 21 840
10 80 21 1,680 30 20 600
80 21 1,680
30 100 22 2,200 30 20 600
20 21 420
100 22 2,200
January 31, inventory..Rp3,220,000January 31, inventory..Rp3,220,000
The unit cost and total cost is in Rp000
57
-
8/8/2019 War22e_Ch07 revisi
57/103
Click to edit Master title style
57
57
7-3-
Example Exercise 7-3
Beginning inventory, purchases, and sales for Item ER27
are as follows:
Nov. 1 Inventory 40 units at Rp5,000
5 Sale 32 units
11 Purchase 60 units at Rp7,000
21 Sale 45 units
56
Assuming a perpetual inventory system and the last-in,
first-out (LIFO) method, determine (a) the cost of themerchandise sold for the November 21 sale and (b) the
inventory on November 30.
58
-
8/8/2019 War22e_Ch07 revisi
58/103
Click to edit Master title style
58
58
Follow My Example 7-3
57
7-3
For Practice: PE 7-3A, PE 7-3B
a) Cost of merchandise sold:
Rp315,000 = (45 units x Rp7,000)
b) Inventory, November 30:
8 units @ Rp5,000 Rp 40,000
15 units @ Rp7,000 105,000
23 Rp145,000
59
-
8/8/2019 War22e_Ch07 revisi
59/103
Click to edit Master title style
59
Determine the cost of inventory
under the periodic inventory
system, using FIFO, LIFO, and
average cost methods.
Objective 4Objective 4
7-4
60
-
8/8/2019 War22e_Ch07 revisi
60/103
Click to edit Master title style
60
Using FIFO, the earliest
batch purchased is
considered the first batchof merchandise sold. The
physical flow does not
have to match theaccounting method chosen.
7-4FIFO Periodic
61
-
8/8/2019 War22e_Ch07 revisi
61/103
Click to edit Master title style
6160
=Rp2,000,000
= 1,680,000
= 2,200,000
Cost of merchandise
available for sale
7-4FIFO Periodic
100 units @ Rp20,000100 units @ Rp20,000
80 units @ Rp21,00080 units @ Rp21,000
100 units @ Rp22,000100 units @ Rp22,000
280 units available
for sale duringyear
Jan. 1
Jan. 10
Jan. 30
Rp5,880,000
62
-
8/8/2019 War22e_Ch07 revisi
62/103
Click to edit Master title style
6261
7-4FIFO Periodic
The physical count on January 31 shows that 150
units are on hand (conclusion: 130 units were
sold). What is the cost of the ending inventory?
= Rp 0
= 1,050,000
= 2,200,000
100 units @ $20100 units @ $20
80 units @ $2180 units @ $21
100 units @ $22100 units @ $22
Jan. 1
Jan. 10
Jan. 30
Sold these
Sold 30 of these
50 units @ Rp21,00050 units @ Rp21,000
100 units @ Rp22,000100 units @ Rp22,000
Ending inventory Rp3,250,000
63
-
8/8/2019 War22e_Ch07 revisi
63/103
Click to edit Master title style
63
7-4FIFO Periodic
Now we can calculate the cost of goods
sold as follows:
Beginning inventory, January 1 (Slide 60) Rp2,000,000
Purchases (Rp1,680,000 + Rp2,200,000) 3,880,000Cost of merchandise available for sale Rp5,880,000
Ending inventory, January 31(Slide 61) 3,250,000
Cost of merchandise sold Rp2,630,000
62
64
-
8/8/2019 War22e_Ch07 revisi
64/103
Click to edit Master title style
64
Using LIFO, the most recent batch
purchased is considered the first batch of
merchandise sold. The actual flow of goodsdoes not have to be LIFO. For example, a
store selling fresh fish would want to sell the
oldest fish first (which is FIFO) even though
LIFO is used for accounting purposes.
7-4LIFO Periodic
65
-
8/8/2019 War22e_Ch07 revisi
65/103
Click to edit Master title style
65
7-4LIFO Periodic
64
=Rp2,000,000
= 1,680,000
= 2,200,000
Cost of merchandise
available for sale
100 units @ Rp20,000100 units @ Rp20,000
80 units @ Rp21,00080 units @ Rp21,000
100 units @ Rp22,000100 units @ Rp22,000
280 units available
for sale duringyear
Jan. 1
Jan. 10
Jan. 30
Rp5,880,000
66
-
8/8/2019 War22e_Ch07 revisi
66/103
Click to edit Master title style
6665
7-4LIFO Periodic
Assume again that the physical count on January
31 is 150 units (and that 130 units were sold).
What is the cost of the ending inventory?
=Rp2,000,000
= 1, 680
= 2,200
100 units @ Rp20,000100 units @ Rp20,000
80 units @ $2180 units @ $21
100 units @ $22100 units @ $22
Jan. 1
Jan. 10
Jan. 30 Sold these
Sold 30 of these
50 units @ Rp21,00050 units @ Rp21,000
= 0
= 1,050,000
Ending inventory Rp3,050,000
67
-
8/8/2019 War22e_Ch07 revisi
67/103
Click to edit Master title style
6766
7-4LIFO Periodic
Now we can calculate the cost of goods
sold as follows:
Beginning inventory, January 1 (Slide 64) Rp2,000,000
Purchases (Rp1,680,000 + Rp2,200,000) 3,880,000Cost of merchandise available for sale Rp5,880,000
Ending inventory, January 31(Slide 65) 3,050,000
Cost of merchandise sold Rp2,830,000
68
-
8/8/2019 War22e_Ch07 revisi
68/103
Click to edit Master title style
68
The weighted average unit cost
method is based on the average
cost of identical units. The totalcost of merchandise available
for sale is divided by the related
number of units of that item.
7-4Average Cost
69
-
8/8/2019 War22e_Ch07 revisi
69/103
Click to edit Master title style
69
7-4Average Cost
Rp5,880,000
=Rp2,000,000
= 1,680,000
= 2,200,000
100 units @ Rp20,000100 units @ Rp20,000
80 units @ Rp21,00080 units @ Rp21,000
100 units @ $22100 units @ $22
280
Jan. 1
Jan. 10
Jan. 30
Average unit cost: Rp5,880,000 280 = Rp21,000
Cost of merchandise sold: 130 units at Rp21,000 = Rp2,730,000
Ending merchandise inventory: 150 units at Rp21,000=
Rp3,150,000
68
100 units @ Rp22,000100 units @ Rp22,000
70
-
8/8/2019 War22e_Ch07 revisi
70/103
Click to edit Master title style
7069
7-4
Now we can calculate the cost of goods
sold as follows:
Beginning inventory, January 1 (Slide 68) Rp2,000,000
Purchases (Rp1,680,000 + Rp2,200,000) 3,880,000Cost of merchandise available for sale Rp5,880,000
Ending inventory, January 31(Slide 68) 3,150,000
Cost of merchandise sold Rp2,730,000
Average Cost
71
-
8/8/2019 War22e_Ch07 revisi
71/103
Click to edit Master title style
71
7-4-
Example Exercise 7-4
The units of an item available for sale during the year were as
follows:
Jan. 1 Inventory 6 units @ Rp50,000 Rp 300,000
Mar. 20 Purchase 14 units @ Rp55,000 770,000Oct. 30 Purchase 20 units @ Rp62,000 1,240,000
Available for sale 40 units Rp 2,310,000
70
There are 16 units of the item in the physical inventory at
December 31. The periodic inventory system is used.Determine the inventory cost by (a) the first-in, first-out
(FIFO) method, (b) the last-in, first-out (LIFO) method, and
(c) the average cost method.
72
-
8/8/2019 War22e_Ch07 revisi
72/103
Click to edit Master title style
72
Follow My Example 7-4
71
7-4
For Practice: PE 7-4A, PE 7-4B
a) First-in, first-out (FIFO) method: Rp992,000 (16 units
x Rp62,000)
b) Last-in, first-out (LIFO) method: Rp850,000 (6 units
x Rp50,000) + (10 units x Rp55,000)
c) Average method: Rp924,000 (16 units x
Rp57,750) where average cost = Rp57,750
(Rp2,310,000 40 units)
73
-
8/8/2019 War22e_Ch07 revisi
73/103
Click to edit Master title style
73
Compare and contrast the
use of the three inventory
costing methods.
Objective 5Objective 5
7-5
74
-
8/8/2019 War22e_Ch07 revisi
74/103
Click to edit Master title style
7473
7-5Partial Income Statements
Net sales Rp3,900,000
Cost of merchandise sold:
Beginning inventory Rp2,000,000Purchases 3,880,000
Merchandise available for sale Rp5,880,000
Less ending inventory 3,250,000
Cost of merchandise sold 2,630,000
Gross profit Rp1,270,000
First-In, First-Out
75
-
8/8/2019 War22e_Ch07 revisi
75/103
Click to edit Master title style
7574
7-5Partial Income Statements
Net sales Rp3,900,000
Cost of merchandise sold:
Beginning inventory Rp2,000,000
Purchases 3,880,000Merchandise available for sale Rp5,880,000
Less ending inventory 3,150,000
Cost of merchandise sold 2,730,000
Gross profit Rp1,170,000
Average Cost
76
-
8/8/2019 War22e_Ch07 revisi
76/103
Click to edit Master title style
7675
7-5Partial Income Statements
Net sales Rp3,900,000
Cost of merchandise sold:
Beginning inventory Rp2,000,000
Purchases 3,880,000Merchandise available for sale Rp5,880,000
Less ending inventory 3,050,000
Cost of merchandise sold 2,830,000
Gross profit Rp1,070,000
Last-In, First-Out
77
-
8/8/2019 War22e_Ch07 revisi
77/103
Click to edit Master title style
77
7-5Recap
Weighted
FIFO LIFO Average
Ending inventory Rp3,250,000 Rp3,150,000 Rp3,050,000
Cost of merchandise sold Rp2,630,000 Rp2,730,000 Rp2,830,000
Gross profit Rp1,270,000 Rp1,170,000 Rp1,070,000
78
-
8/8/2019 War22e_Ch07 revisi
78/103
Click to edit Master title style
78
Describe and illustrate thereporting of merchandise
inventory in the financial
statements.
Objective 6Objective 6
7-6
79
-
8/8/2019 War22e_Ch07 revisi
79/103
Click to edit Master title style
79
7-6
If the cost of replacing an
item in inventory is lower
than the original purchasecost, the lower-of-cost-or-
market(LCM) methodis
used to value the inventory.
Lower-of-Cost-or-Market Method
80
-
8/8/2019 War22e_Ch07 revisi
80/103
Click to edit Master title style
80
7-6
Market, as used in lower
of cost or market, is the
cost to replace the
merchandise on the
inventory date.
81
-
8/8/2019 War22e_Ch07 revisi
81/103
Click to edit Master title style
81
7-6
Cost and replacement cost can be
determined for
1) each item in the inventory,2) major classes or categories of
inventory, or
3) the inventory as a whole.
82
-
8/8/2019 War22e_Ch07 revisi
82/103
Click to edit Master title style
82
A B C D E F G
Unit Unit
Inventory Cost Market ower
Commodity Quantity Price Price Cost Market of C or M1 A 400 Rp10,250 Rp 9,500 Rp4,100,000 Rp3,800,000 Rp3,800,000 1
2 B 120 22,500 24,100 2,700,000 2,892,000 2,700,000 2
3 C 600 8,000 7,750 4,800,000 4,650,000 4,650,000 3
4 D 280 14,000 14,750 3,920,000 4,130,000 3,920,000 4
5 Total Rp15,520,000 Rp15,472,000 Rp15,070,000 5
Total
De te rm in in g I n v e n t o r y a t
o w e r -o f-C o s t -o r-M a rk e t
M e tho d
7-6
83
-
8/8/2019 War22e_Ch07 revisi
83/103
Click to edit Master title style
83
7-6
Merchandise that is out of date,
spoiled, or damaged should be
written down to its net realizablevalue. This is the estimated
selling price less any direct cost
of disposal, such as sales
commissions.
84
-
8/8/2019 War22e_Ch07 revisi
84/103
Click to edit Master title style
84
7-6Merchandise Inventory on the
Balance Sheet
Merchandise inventory is usually
presented in the Current Assets
section of the balance sheet,
following receivables.
85
-
8/8/2019 War22e_Ch07 revisi
85/103
Click to edit Master title style
85
7-6
The method of
determining the cost ofinventory (FIFO, LIFO,
or weighted average)
should be shown.
86
-
8/8/2019 War22e_Ch07 revisi
86/103
Click to edit Master title style
86
7-6-
Example Exercise 7-5
On the basis of the following data, determine the value
of the inventory at the lower of cost or market. Apply
lower of cost or market to each inventory item as shown
in Exhibit 7.
85
Inventory Unit Unit
Commodity Quantity Cost Price Market Price
C17Y 10 Rp 39,000 Rp 40,000
B563 7 Rp 110,000 98,000
87
-
8/8/2019 War22e_Ch07 revisi
87/103
Click to edit Master title style
87
Follow My Example 7-5
86For Practice: PE 7-5A, PE 7-5B
Unit Unit Lower of
Commodity Qty Cost Price Market Price Cost Market C or M
C17Y 10 Rp 39,000 Rp 40,000 Rp 390,000 Rp 400,000 Rp 390,000
B563 7 110,000 98,000 770,000 686,000 686,000
Total Rp1,160,000 Rp1,086,000 Rp1,076,000
7-6-
88
-
8/8/2019 War22e_Ch07 revisi
88/103
Click to edit Master title style
88
7-6-
Example Exercise 7-6
Agung Jaya Motor Shop incorrectly counted its
December 31, 2008 inventory as Rp250,000,000
instead of the correct amount of Rp220,000,000.
Indicate the effect of the misstatement on Agung
Jaya Motor Shop December 31, 2008 balance sheet
and income statement for the year ended December
31, 2008.
87
89
6
-
8/8/2019 War22e_Ch07 revisi
89/103
Click to edit Master title style
89
Follow My Example 7-6
88For Practice: PE 7-6A, PE 7-6B
7-6-
Amount of Misstatement
Overstatement (Understatement)
Balance Sheet:
Merchandise inventory overstated Rp 30,000,000
Current assets overstated 30,000,000Total assets overstated 30,000,000
Owners equity overstated 30,000,000
Income Statement:
Cost of merchandise sold understated Rp(30,000,000)
Gross profit overstated 30,000,000Net income overstated 30,000,000
90
-
8/8/2019 War22e_Ch07 revisi
90/103
Click to edit Master title style
90
Estimate the cost ofinventory, using the retail
method and the gross profit
method.
Objective 7Objective 7
7-7
91
-
8/8/2019 War22e_Ch07 revisi
91/103
Click to edit Master title style
91
The retail inventory methodof estimating inventory
cost is based on therelationship of the cost ofmerchandise available for
sale to the retail price of the
same merchandise.
7-7Retail Inventory Method
92
-
8/8/2019 War22e_Ch07 revisi
92/103
Click to edit Master title style
92
A B C
Cost Retai l
1 Merchandise inventory, January 1 Rp19,400,000 Rp36,000,000 1
2 Purchases in January (net) 42,600,000 64,000,000 2
3 Merchandise available for sale Rp62,000,000 Rp100,000,000 3
5 Sales for January (net) 70,000,000 5
6 Merchandise inventory, January 31, at retail Rp30,000,000 6
7 Merchandise inventory, January 31, at estimated cost 7
8 (Rp30,000,000 x 62%) Rp18,600,000 8
44Ratio of cost to retai l price: (Rp 62,000,000:Rp
100,000,000) = 62%
Determining Inventory by
the Retail Method7-7
93
7 7
-
8/8/2019 War22e_Ch07 revisi
93/103
Click to edit Master title style
93
7-7
Example Exercise 7-7
A business using the retail method of inventory costing
determines that merchandise inventory at retail is
Rp900,000,000. If the ratio of cost to retail price is
70%, what is the amount of inventory to be reported on
the financial statements?
92
Follow My Example 7-7
Rp630,000,000 (Rp900,000,000 x 70%)
For Practice: PE 7-7A, PE 7-7B
94
6161
-
8/8/2019 War22e_Ch07 revisi
94/103
Click to edit Master title style
94
Thegross profit methoduses
the estimated gross profit for theperiod to estimate the inventory
at the end of the period.
7-7Gross Profit Method
95
-
8/8/2019 War22e_Ch07 revisi
95/103
Click to edit Master title style
95
A B C
Cost Retai l
1 Merchandise inventory January 1 Rp 57,000,000 1
2 Purchases in January (net) 180,000,000 2
3 Merchandise available for sale Rp 237,000,000 3
4 Sales for January (net) Rp 250,000,000 4
5 Less estimated gross profit (Rp250,000 x 30%) 75,000,000 5
6 Estimated cost of merchandise sold 175,000,000 6
7 Estimated merchandise inventory, January 31 Rp 62,000,000 7
Estimating Inventory by
Gross Profit Method
7-7
96
-
8/8/2019 War22e_Ch07 revisi
96/103
Click to edit Master title style
96
The gross profit method is useful for
estimating inventories for monthly orquarterly financial statements in a
periodic inventory system.
7-7
97
7 7
-
8/8/2019 War22e_Ch07 revisi
97/103
Click to edit Master title style
97
7-7
Example Exercise 7-8
Based on the following data, estimate the cost of ending
merchandise inventory:
Sales (net) Rp1,250,000,000
Estimated gross profit rate 40%
Beginning merchandise inventory Rp100,000,000
Purchases (net) 800,000,000Merchandise available for sale Rp900,000,000
96
98
7 7
-
8/8/2019 War22e_Ch07 revisi
98/103
Click to edit Master title style
98
Follow My Example 7-8
97For Practice: PE 7-8A, PE 7-8B
7-7
Merchandise available for sale Rp900,000,000
Less cost of merchandise sold[Rp1,250,000,000 x (100% 40%)] 750,000,000
Estimated ending merchandise inventory Rp150,000,000
99
-
8/8/2019 War22e_Ch07 revisi
99/103
Click to edit Master title style
99
7-7
Inventory turnovermeasures the
relationship between the volume of goods
(merchandise) sold and the amount of
inventory carried during the period.
Inventory turnover =Cost of merchandise sold
Average inventory
100
-
8/8/2019 War22e_Ch07 revisi
100/103
Click to edit Master title style
100
HERO RIMO
Cost Of Merchandise Sold Rp4,035,116,000,000 Rp87,696,796,439
Inventories
Beginning Of Year Rp427,941,000,000 Rp24,907,993,901End Of Year Rp494,919,000,000 Rp28,537,693,305
Average Rp461,430,000,000 Rp26,722,843,603
Inventory Turnover 8.74 times 3.28 times
7-7
101
-
8/8/2019 War22e_Ch07 revisi
101/103
Click to edit Master title style
101
7-7
Generally, the larger the
inventory turnover, the moreefficient and effective the
management of inventory.
102
-
8/8/2019 War22e_Ch07 revisi
102/103
Click to edit Master title style
102
The number of days sales in
inventory is a rough measure of the
length of time it takes to acquire,
sell, and replace the inventory.
7-7
Average inventory
Average daily cost of
merchandise sold
Number of days
sales in inventory =
103
-
8/8/2019 War22e_Ch07 revisi
103/103
Click to edit Master title style
103
HERO RIMO
Average Daily Cost Of Merchandise Sold
Rp16,681,472,000/365 Rp11,055,112,328.77
Rp1,157,226,000/365 Rp240,265,196Average Inventory Rp461,430,000,000 Rp26,722,843,603
Number Of Days' Sales in Inventory 41.74 days 111.22 days
7-7
top related