Accounting Lecture 3: Analysis of Financial Statements 1

Question 1

What is Inventory?

Answer 1

• Goods bought or manufactured for resale but unsold
• Timing difference between production capacity and customer demand

Question 2

What is IAS 2 Valuation?

Answer 2

Valuation (IAS2) is the lower of cost or net realisable value

Question 3

What is Cost of Sales?

Answer 3

Question 4

What are the three types of Inventory?

Answer 4

1. Raw materials – pre-production
2. Work in progress - uncompleted
3. Finished goods – manufactured or purchased and ready for sale

Question 5

Explain the Flow of Costs in Manifacturing:

Answer 5

Question 6

What are the three costing appraioches in Inventory?

Answer 6

Weighted average
• FIFO (first in, first out)
• LIFO (last in, first out) – no longer allowed in UK

Question 7

What is the Net Realizable Value?

Answer 7

Use if lower than cost

• Proceeds of sale, less costs of disposal
Cost of product £15
Discounted sales price £12 but incurs transport cost of £2
Net realisable value: £10 – use this value as it is lower than cost

Cost of product £15
Scrap value £8 – use this value as it is lower than cost

Question 8

Waht are the 3 differnet Production Methods?

Answer 8

1. Custom
   • Unique, single products
2. Batch
   • A quantity of the same goods produced at the same time ( a

production run)

3. Continuous (or process)
   • Continuous production process of the same, indistinguishable goods
4. Job Costing vs. Process Costing