U2, AOS 1 - Lesson 3 - Inventory Cards (Pt.2)

Question 1

An inventory gain is…

Answer 1

…when the business has more inventory on hand than it had recorded on the inventory card.

Question 2

3 x causes of an inventory gain =

Answer 2

1. An undersupply to customer, which means less inventory left the business than was recorded in the inventory cards
2. An oversupply by suppliers, which means more inventory entered the business than was recorded in the inventory cards.
3. Recording error, for example, an item was contributed by the owner, however, it was not recorded in the inventory cards.

Question 3

Inventory loss is…

Answer 3

…an expense that occurs when the physical count shows less inventory than is shown on the inventory cards.

Question 4

Inventory loss or gain is identified using the process of a…

Answer 4

Inventory count / physical count =

…the process of counting every item of inventory on hand to verify the accuracy of the inventory cards and detect any inventory loss or gain.

Question 5

Give x3 causes of inventory loss… (there are actually 5 but you’re find as long as you can give 3)

Answer 5

1. Theft, so has left the business but would not have been recorded
2. Damage and disposed of, however, not recorded
3. An oversupply to customers, which means more inventory left the business than was recorded in the inventory cards
4. An undersupply by suppliers, which means less inventory entered the business than was recorded in the inventory cards.
5. Recording error, for example, an item was withdrawn from the business by the owner, however, it was not recorded in the inventory cards.

Question 6

Using FIFO as the cost assignment method, how do you identify the unit cost for the inventory that has been lost?

Answer 6

First in, first out applies.

Question 7

Using Identified Cost as the cost assignment method, how do you identify the unit cost for the inventory that has been lost?

Answer 7

Unit cost would be identified in the source document to record the loss (usually a Memo)

e.g. “A physical cost identified 5 items of inventory had been lost t $5.50 per unit”

Question 8

Which cost assignment method is being used here?

“The business conducted a physical inventory count on August 31st and identified there to be 2 extra Black T-shirts (XL) in the storeroom (cost of extra shirts was identified as 1 @ $5.00 and 1 @ $5.50)”

Answer 8

Identified Cost

Question 9

Which cost assignment method is being used here?

“The business conducted a physical inventory count on August 31st and identified there to be 2 extra Black T-shirts (XL) in the storeroom.

Answer 9

FIFO - In this case, to record the inventory gain using the FIFO method, you would use the latest unit cost in the “IN” column.

Question 10

The role of a physical inventory count upholds which QC?

Answer 10

Faithful representation
(could also have verifiability)

Conducting an inventory count will ensure the recording of inventory in the balance sheet is a faithful representation of the economic event it claims to represent, complete, free from material error and neutral.

Question 11

4 x benefits of using a perpetual inventory system…

Answer 11

1. Assists in the reordering of inventory
2. Fast and slow-moving lines of inventory can be identified
3. Inventory losses and gains can be detected
4. Interim reports can be prepared without the need for physical counts.