5-Inventory

Question 1

Goods In Transit

Answer 1

FOB Shipping point: title passes when shipped by seller

FOB Destination: title passes when received by buyer

Question 2

Cost of Inventory

Answer 2

• Warehousing costs prior to sale
• Insurance, repacking and modifications
• Freight-in= Inventory
• Freight-out= Seller

Question 3

Consignment Inventory

Answer 3

Consignor- has ownership, but not possession of the goods.
Rule: Consignor includes consigned goods in the hands of the consignee (potential buyer) at consignor’s cost plus shipping costs to the consignee.

Consignee- has possession, but not ownership of the goods.

Question 4

Measuring Inventory Quantities

Answer 4

Periodic Inventory System= Physical count

Perpetual Inventory System= count in a real-time count

Question 5

Inventory Costing Methods

Answer 5

FIFO=Balance Sheet is ok, CGS is low. Perpetual and periodic inventory systems are the same

LIFO= Income statement is ok. Perpetual and periodic inventory systems are different

Question 6

Allowances for Uncollectible Accounts

Answer 6

Beginning balance
Addition: credit sales
Subtract: Write-offs
Ending Balances

Question 7

Dollar Value LIFO

Answer 7

Ending Inventory /Price Level Index

Question 8

Lower of Cost Market (LCM)

Answer 8

Ceiling= NRV (Selling-cost)
Floor= NRV-Normal profit
Replacement cost= purchase or reproduction
- Middle of these numbers is used as market, then compare market with cost and take the lower (LCM)

Question 9

Gross Profit Method

Answer 9

Beginning Inventory
+ Purchases
- Ending Inventory
=CGS

Question 10

Conventional Retail Method

Answer 10

Net Markdowns= included sales retail percentage calculation

Net Markups= included in the cost to retail percentage calculation

Question 11

LCNRV

Answer 11

Mostly used under IFRS.

LCNRV= Take the lowest of cost and ceiling only