Inventory Valuation (Week 10)

Question 1

What is Carriage Inwards?

Answer 1

–> Cost paid by purchaser of having goods transported to his business

–> Added to cost of purchases

Question 2

What is Carriage Outwards?

Answer 2

–> Cost to the seller, paid by the seller, of having goods transported to customer

–> Is a selling and distribution expense

Question 3

Opening Inventory

Answer 3

–> Listed on trial balance
–> Inventory at beginning
–> Cost of sales (COS) expense
–> Income Statement (COS)

Question 4

Closing Inventory

Answer 4

–> Shown in notes
–> Inventory at end
–> Year end adjustment to accounts
–> Income Statement (COS) + Statement of Financial Position (Inc Asset)

Question 5

What is Valuation?

Answer 5

Inventories must be valued at the lower of:
–> Cost
–> Net realisable value (NRV)

Question 6

First in, First out (FIFO)

Answer 6

Items purchased or produced first are sold first

Question 7

Weighted average cost (AVCO)

Answer 7

Costs of items purchased or produced are determined on weighted average

Question 8

Last In, First Out (LIFO)

Answer 8

Items purchased or produced last are sold first

Question 9

What does IAS2 say?

Answer 9

–> Inventories should be measured at the lower of cost and net realisable value

–> Inventory can include raw materials, work in progress, finished goods, goods purchased for resale

–> FIFO and AVCO allowed

–> LIFO is not allowed