Chapter 10

Question 1

What are inventories?

Answer 1

Short-term, current, tangible, physical assets which are meant to be sold or transforrmed during the process.

Question 2

What is merchandising business?

Answer 2

Buying items to resell, they dont have a production process.

Question 3

What is manufacturing business?

Answer 3

They use inputs to make outputs, they produce and have work-in-progress inventory.

Question 4

How is ending inventory reported in the balance sheet?

Answer 4

as an asset

Question 5

Šta sve spada u cost of goods sold?

Answer 5

Cost of all raw materials, all finished goods, so all the goods that we produced and we sold.

Question 6

Periodic inventory system

Answer 6

At the end of the year, at the end of the year we take physical account of how many materials we got left

Question 7

Perpetual inventory system

Answer 7

Used during the year, when we make a sale we credit(decrease) inventory(asset) account cause we got less inventory to sell in the future. It counts up usage during the year but leaves closing inventory as a residual figure. Inventory account is updated for each purchase and sale of inventory.

Question 8

Koji value koristimo da valuiramo inventory koji ostao neprodan na kraju godine?

Answer 8

We need to calculate the lower of cost and net realisable value. The cost is the price at which we have purchased the inventory from our suppliers(invoice cost). For finished goods is a bit harder to calculate the cost cause we gotta include the production process too.

Question 9

What is a direct production cost?

Answer 9

Raw material and direct labour, we know exactly how much we used for one product

Question 10

What are production overheads?

Answer 10

We do not know how much we have used in order to make one product(npr. electricity)

Question 11

How is profit connected to inventory?

Answer 11

The valuation of inventory which is still in the company at the end of the accounting period(the closing inventory) also directly affects the profit of any individual year.

Question 12

What is the most common basis for evaluation of inventory?

Answer 12

The input basis of historical cost

Question 13

Describe Unit Cost

Answer 13

1. We identify the actual physical units of production that have moved in or out
2. In order to use this method each product should be distinguishable e.g. by having a serial number
3. We simply add up the recorded costs of those units that have been sold to give cost of sales and those units left in the factory to give closing inventory

Question 14

these different ways of calculating(such as unit cost, weighted average cost…) are based on which application?

Answer 14

They are based on strict application of the historical cost principle.

Question 15

Ways of measuring exit value:

Answer 15

1. Discounted money receipts
   2.Current selling prices(fair value)
   3.Net Realizable Value(NRV)

Question 16

Discounted money receipts

Answer 16

They can be used when there is defenite amount and time of the receipt

Question 17

Current selling prices(fair value)

Answer 17

They may be used when there is a defenite price and no significant selling costs or delays

Question 18

Net realizable value(NRV)

Answer 18

Is the estimated selling price in the ordinary course of business, less costs of completion and less costs to be incurred in marketing, distibuting and selling but without deduction for general administration of profit(profit would be taken before the inventory was sold). NRV je exit value.

Question 19

kako se još naziva closing inventory account i where it will be reported?

Answer 19

It is also called contra-expense account and it will be reported in the Income Statement and contribute to the costs of goods sold.

Question 20

What is inventory cost equal to i šta sve spada u to?

Answer 20

=cost of production. U ovo ukljucujemo direct production costs+production overheads.Selling and administrative expenses are not included.

Question 21

What technique we use for interchangable inventories?

Answer 21

FIFO, Weighted average cost, LIFO

Question 22

Jel historical cost entry or exit value?

Answer 22

Entry value

Question 23

What is happening when net realizable value is higher than cost of inventory?

Answer 23

No adjustment is made

Question 24

What happens when purchase costs of inventory regulary rise?

Answer 24

1.FIFO reports the lowest costs of goods sold and the highest cost of ending inventory
2.LIFO reports the highest cost of goods sold and the lowest cost of ending inventory
3.Weighted Average yields results between FIFO and LIFO