Module 4 Flashcards
What are inventories?
Current assets, as its expected they'll be sold within twelve months Either: -finished goods awaiting sale -work n progress -raw materials and consumables
What are the journal entries for recognising the coat of inventories purchased on credit?
Dr P&L - purchases
Cr Trade creditors
Why are purchases a temporary expense?
They will be transferred to cost of sales at period end.
How are inventories valued?
Lower of cost and net realisable value.
What are the two methods of valuing the cost of inventories?
First in out first out (FIFO)
Weighted average cost
What is net realisable value?
The estimated selling price less the estimated cost of completion and the estimated cost necessary to make the sale.
Why may inventories not be recoverable?
- damaged
- wholly or partially obsolete
- selling price declined
What is the cost of sales?
= opening inventories + purchases - closing inventories
Recognised as an expense
What are the journal entires when an entity recognises cost of sales and increase in inventories?
Dr P&L- cost of sales
Dr Inventories
Cr P&L - purchases
transfers purchases (temporary) to cost of sales
What are the journal entires when an entity recognises cost of sales and decrease in inventories?
Dr P&L- cost of sales
Cr Inventories
Cr P&L - purchases
What are the journal entries when an entity recognises a write-down of inventories to NRV?
Dr P&L- cost of sales
Cr Inventories
What is margin?
Margin = (gross profit / sales)*100
What is markup?
Markup= (gross profit/ cost of sales)*100
