Inventory Flashcards
Periodic Inventory System
Physical inventory count, typically done at year end; no adjustment is made to inventory until the end of the period when a physical count is made and ending inventory is calculated; COGS is the plug and the exact amount of inventory shortages cannot be determined since it is buried in COGS
Perpetual inventory system
ongoing, real-time count; inventory purchases are debited to inventory; the quantity on hand can be determined at any point in time.
Specific Identification
Used when inventory is few in number, very expensive and can be clearly identified; very heterogeneous items.
FIFO
LISH
perpetual and periodic inventory systems are the same
Understates COGS, overstates NI
Ending inventory is ok thus B/S is ok
LIFO
FISH
COGS and NI are ok thus I/S is ok
ending inventory is understated so B/S is wacky
DOES NOT EXIST FOR IFRS
Moving average
used with perpetual inventory system;computes the average after each purchase
Weighted average
used with periodic inventory system; takes total costs of all inventory purchases during the year and divides them by the total number of inventory units available during the year
Dollar-Value LIFO
ending inventory at cost / price level index
Do not replace anything when you sell
Price Level Index (inflation)
ending inventory at cost / same inventory at the beginning cost
Ceiling
Sales Price LESS cost of disposal = NRV
Replacement cost
what it would cost to repurchase or reproduce
Floor
NRV “aka ceiling” LESS normal profit =floor
How are losses treated her?
Immediately! Once it is written down, you cannot recover it UNLESS under IFRS.
Lower of Cost or Market
Relates to LIFO or inventory method
Market: Ceiling, Replacement cost, Floor
Cost: what it cost you
choose the middle of market, then go with either the lower of market or of cost
Lower of Cost or NRV
Relates to everything else other than LIFO or Inventory Method
FIFO
Specific Identification
Weighted Avg
Moving Avg
Cost versus NRV ( aka ceiling = sales price - cost of disposal)
