tailieunhanh - Lecture Intermediate accounting (Volume 1, 11th Canadian edition) – Chapter Appendix 8: Inventory

Lecture Intermediate accounting (Volume 1, 11th Canadian edition) – Chapter Appendix 8: Inventory. After studying Appendices 8A and 8B you should be able to: apply the retail method of estimating inventory, identify other primary sources of GAAP for inventory. | 1 CHAPTER 8 Appendix A & B: INVENTORY 2 2 Chapter 8: Inventory After studying Appendices 8A and 8B you should be able to: Apply the retail method of estimating inventory. Identify other primary sources of GAAP for inventory. 3 3 Appendix 8A – Retail Inventory Method Accounting for inventory in a retail operation presents several challenges: It is difficult to use specific identification for high volume products It is difficult to determine the cost of each sale It is difficult to change codes to reflect declines in value of the merchandise An alternative is to estimate inventory cost when necessary by takin a physical inventory at retail prices Periodic inventory counts are taken to capture lost or stolen items Differences between the records and the physical counts require an adjustment 4 4 LO14 Appendix 8A – Retail Inventory Method The retail inventory method can be used make the records agree with the physical count The retail inventory method requires: The total cost and retail value of the goods purchased The total cost and retail value of the goods available for sale, and The sales for the period The retail method has been approved by various retail associations, and the accounting profession under ASPE, IFRS and the CRA. 5 5 LO14 Appendix 8A – Retail Inventory Method One advantage is that the inventory balance can be approximated without a physical count. Makes the method useful for interim reports Used to estimate losses by insurance companies Acts as a control device Speeds up physical inventory count at the end of the year 6 6 LO14 Appendix 8A – Retail Inventory Method Terminology Markup: means an increase in the price above the original sales price Markup Cancellations: are decreases in merchandise prices that had been marked up above the original sales price Net Markups: refer to markups less markup cancellations Markdowns: are reductions in price below the original selling price Markdown Cancellations: Occur when the markdowns are later offset by . | 1 CHAPTER 8 Appendix A & B: INVENTORY 2 2 Chapter 8: Inventory After studying Appendices 8A and 8B you should be able to: Apply the retail method of estimating inventory. Identify other primary sources of GAAP for inventory. 3 3 Appendix 8A – Retail Inventory Method Accounting for inventory in a retail operation presents several challenges: It is difficult to use specific identification for high volume products It is difficult to determine the cost of each sale It is difficult to change codes to reflect declines in value of the merchandise An alternative is to estimate inventory cost when necessary by takin a physical inventory at retail prices Periodic inventory counts are taken to capture lost or stolen items Differences between the records and the physical counts require an adjustment 4 4 LO14 Appendix 8A – Retail Inventory Method The retail inventory method can be used make the records agree with the physical count The retail inventory method requires: The total cost and retail .