Tài liệu ôn tập chương 7 - Tài liệu tham khảo | Đại học Hoa Sen

11/22/2021 Chapter 7 • Cost of goods sold
• Accounting for opening and closing inventories Inventory • Counting inventories • Valuing inventories • IAS 2 Inventories Syllabus learning outcomes
• Recognise the need for adjustments for inventory in
preparing financial statements.
• Record opening and closing inventory.
• Identify the alternative methods of valuing inventory.
• Understand and apply the IASB requirements for valuing inventories.
• Recognise which costs should be included in valuing inventories. BP P L EA RN IN G M ED IA 1 11/22/2021 Syllabus learning outcomes
• Calculate the value of closing inventory using 'first in,
first out' and 'average cost' (both periodic weighted
average and continuous weighted average).
• Understand the use of continuous and period end inventory records.
• Understand the impact of accounting concepts on the valuation of inventory.
• Identify the impact of inventory valuation methods on profit and on assets. BP P L EA RN IN G M ED IA Overview Accounting adjustments Inventory Valuation Effects on profit Cost Net realisable value Methods of estimating cost FIFO AVCO BP P L EA RN IN G M ED IA 2 11/22/2021 Inventories  Inventories are assets:
• Held for sale in the ordinary course of business
• In the process of production for such sale; or
• In the form of materials or supplies to be consumed in the
production process or in the rendering of services
 Inventories can include raw materials, work in progress,
finished goods, goods purchased for resale BP P L EA RN IN G M ED IA Cost of goods sold 1
• Formula for the cost of goods sold $ Opening inventory value X
Add: purchases (or production costs) X X Less: closing inventory value (X) Cost of goods sold X BP P L EA RN IN G M ED IA 3 11/22/2021 COGS example 1
Perry P Louis, trading as the Umbrella Shop, ends his
financial year on 30 September each year. On 1 October
20X4 he had no goods in inventory. During the year to 30
September 20X5, he purchased 30,000 umbrellas costing
$60,000 from umbrella wholesalers and suppliers. He resold
the umbrellas for $5 each, and sales for the year amounted
to $100,000 (20,000 umbrellas). At 30 September there were
10,000 unsold umbrellas left in inventory, valued at $2 each.
What was Perry P Louis's gross profit for the year? BP P L EA RN IN G M ED IA Solution Calculation of COGS $ Opening inventory value 0
Add: purchases (30,000units@$2) 60,000 60,000
Less: closing inventory (10,000units@$2) (20,000) Cost of goods sold 40,000 Calculation of gross profit Sales (20,000 units) 100,000
Cost of goods sold (20,000 units) 40,000 Gross profit 60,0000 BP P L EA RN IN G M ED IA 4 11/22/2021 COGS example 1 (cont)
We shall continue the example of the Umbrella Shop
into its next accounting year, 1 October 20X5 to 30
September 20X6. During the course of this year, Perry
P Louis purchased 40,000 umbrellas at a total cost of
$95,000. During the year he sold 45,000 umbrellas for
$230,000. At 30 September 20X6he had 5,000
umbrellas left in inventory, which had cost $12,000.
What was his gross profit for the year? BP P L EA RN IN G M ED IA Solution Calculation of COGS $
Opening inventory value (10,000unit@$2) Add: purchases (40,000units)
Less: closing inventory (5,000units@) Cost of goods sold Calculation of gross profit Sales (20,000 units)
Cost of goods sold (20,000 units) Gross profit BP P L EA RN IN G M ED IA 5 11/22/2021 Cost of goods sold 2 Carriage inwards
• Cost paid by purchaser of having goods transported to his business • Added to cost of purchases Carriage outwards
• Cost to the seller, paid by the seller, of having goods transported to customer
• Is a selling and distribution expense BP P L EA RN IN G M ED IA COGS example 2
• Clickety Clocks imports and resells clocks. On 1 July
20X5, he had clocks in inventory valued at $17,000.
During the year to 30 June 20X6 he purchased more
clocks at a cost of $75,000. Carriage inwards amounted to
$2,000. Sales for the year were $162,100. Other expenses
of the business amounted to $56,000 excluding carriage
outwards which cost $2,500. The value of the goods in
inventory at the year end was $15,400.
• Required: Prepare the statement of profit or loss of
Clickety Clocks for the year ended 30 June 20X6 BP P L EA RN IN G M ED IA 6 11/22/2021 Solution Calculation of COGS $ Opening inventory value Add: purchases Add: Carriage inwwards Less: closing inventory Cost of goods sold BP P L EA RN IN G M ED IA Solution CLICKETY CLOCKS
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 20X6 $ Revenue 162,100 Cost of goods sold Gross profit Carriage outwards Other expenses Profit for the year BP P L EA RN IN G M ED IA 7 11/22/2021
• Formula for the cost of goods sold $ Opening inventory value X
Add: purchases (or production costs) X
(Purchases + carriage in – Purchases returns) X Less: closing inventory value (X) Cost of goods sold X BP P L EA RN IN G M ED IA
Goods written off or written down 1
• (a) Goods might be lost or stolen.
• (b) Goods might be damaged, become worthless and so be thrown away.
• (c) Goods might become obsolete or out of fashion. These
might be thrown away, or sold off at a very low price in a clearance sale. BP P L EA RN IN G M ED IA 8 11/22/2021
Goods written off or written down 2
When goods are lost, stolen or thrown away as worthless,
the business will make a loss on those goods because their 'sales value' will be nil.
• If, at the end of an accounting period, a business still has
goods in inventory which are either worthless or worth less
than their original cost, the value of the inventories should be written down to:
• (a) Nothing, if they are worthless
• (b) Their net realisable value, if this is less than their original cost BP P L EA RN IN G M ED IA Example
• Storm, an entity, had 500 units of product X at 30 June
20X7. The product had been purchased at a cost of $18
per unit and normally sells for $24 per unit. Recently,
product X started to deteriorate but can still be sold for
$20 per unit, provided that some rectification work is
undertaken at a cost of $3 per unit
• What was the value of closing inventory at 30 June 20X7?
• Cost = $18 per unit > NRV = $20 - $3 = $17 per unit
• Inventory is therefore valued at $17 per unit, giving a
valuation for 500 units of $8,500 BP P L EA RN IN G M ED IA 9 11/22/2021 Example
• Lucas Wagg, trading as Fairlock Fashions, ends his
financial year on 31 March. At 1 April 20X5 he had goods
in inventory valued at $8,800. During the year to 31 March
20X6, he purchased goods costing $48,000. Fashion
goods which cost $2,100 were still held in inventory at 31
March 20X6, and Lucas Wagg believes that these could
only now be sold at a sale price of $400. The goods still
held in inventory at 31 March 20X6 (including the fashion
goods) had an original purchase cost of $7,600.Sales for the year were $81,400.
• Required: Calculate the gross profit of Fairlock Fashions
for the year ended 31 March 20X6. BP P L EA RN IN G M ED IA Solution INVENTORY COUNT At cost $
Realisable value $ Amount written down $ Fashion goods 2,100 400 1,700 Other goods 5,500 7,600 GROSS PROFIT CALCULATION Sales Value of opening inventory Purchases Less closing inventory Cost of goods sold Gross profit BP P L EA RN IN G M ED IA 10