Sunday, April 13, 2008
1. Define Inventories as per IAS 2.
- Inventories must be valued at the lower of cost and NRV.
2. Make a ledger accounting for Inventories
- Closing Inventories: Dr Inventory a/c, Cr Trading a/c
- Opening Inventories: Dr Trading a/c, Cr Inventory a/c
3. Define Cost and NRV as applied to inventory.
- Cost: purchase (import duties, trade discounts) + cost of conversion (DL + DM + production OH) + other costs (inwards cost)
- NRV: Amount fall below cost due to damaged, obsolete or cost of completion increased to make a sale. SP - cost to completion - cost to make a sale.
4. Determine Cost of Sales.
- When inventories are sold,
a. The carrying amount is recognised as an expense in the period in which related revenue is recognised.
b. The amount of any write-down of inventories to NRV and all losses of inventories are recognised as an expense in the period the write downs or loss occurs.
c. The amount of any reversal write-down of inventories, arising from an increase in NRV, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which reversal occurs.
5. Define fixed and variable production overheads
- Fixed production overheads are indirect cost of production that remain relatively constant regardless if the volume of production (ie. factory management and administration)
- Variable production overheads are indirect cost of production that vary directly or indirectly with the volume of production (ie. indrect materials and labour)
6. Distinguish between perpetual and periodic inventory.
- Perpetual inventory system updates inventory accounts after each purchase or sale.
- Periodic inventory system records inventory purchase or sale in "Purchases" account.
- Inventories must be valued at the lower of cost and NRV.
2. Make a ledger accounting for Inventories
- Closing Inventories: Dr Inventory a/c, Cr Trading a/c
- Opening Inventories: Dr Trading a/c, Cr Inventory a/c
3. Define Cost and NRV as applied to inventory.
- Cost: purchase (import duties, trade discounts) + cost of conversion (DL + DM + production OH) + other costs (inwards cost)
- NRV: Amount fall below cost due to damaged, obsolete or cost of completion increased to make a sale. SP - cost to completion - cost to make a sale.
4. Determine Cost of Sales.
- When inventories are sold,
a. The carrying amount is recognised as an expense in the period in which related revenue is recognised.
b. The amount of any write-down of inventories to NRV and all losses of inventories are recognised as an expense in the period the write downs or loss occurs.
c. The amount of any reversal write-down of inventories, arising from an increase in NRV, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which reversal occurs.
5. Define fixed and variable production overheads
- Fixed production overheads are indirect cost of production that remain relatively constant regardless if the volume of production (ie. factory management and administration)
- Variable production overheads are indirect cost of production that vary directly or indirectly with the volume of production (ie. indrect materials and labour)
6. Distinguish between perpetual and periodic inventory.
- Perpetual inventory system updates inventory accounts after each purchase or sale.
- Periodic inventory system records inventory purchase or sale in "Purchases" account.
Labels: accountancy, accounting, financial accountancy, financial accounting
what we could have been, 8:15 PM.
