Cost allocation methods and de-recognition of inventory

Question 1

What are two costing inventory methods? (2)

Answer 1

1. First in, first out (FIFO)

2. Weighted average cost (WAC)

Question 2

How often do we calculate COS expense on the perpetual method vs the periodic method?

Answer 2

Every time a sale is made vs at the end of the year, after a physical inventory count

Question 3

When do we no longer recognise inventory as an asset?

Answer 3

When an item of inventory stops being an asset when we do not expect further economic benefits to flow from the item

Question 4

When will inventory stop being an asset that can not produce further EB’s? (4)

Answer 4

• Inventory has been sold and cannot be sold again in the future
• Inventory is stollen and cannot be sold in the future
• The market has changed and the inventory cannot be sold in the future
• Inventory is damaged and cannot be repaired and sold