Acca f3 Financial Accounting (int) Study Text
Part D Recording transactions and events
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- Bu səhifədəki naviqasiya:
- FIFO (first in, first out)
- AVCO (average cost)
Part D Recording transactions and events 8: Inventory 137 A business may be continually purchasing consignments of a particular component. As each consignment is received from suppliers they are stored in the appropriate bin or on the appropriate shelf or pallet, where they will be mingled with previous consignments. When the storekeeper issues components to production he will simply pull out from the bin the nearest components to hand, which may have arrived in the latest consignment or in an earlier consignment or in several different consignments. Our concern is to devise a pricing technique, a rule of thumb which we can use to attribute a cost to each of the components issued from stores. There are several techniques which are used in practice.
which they are received from suppliers. The components issued are deemed to have formed part of the oldest consignment still unused and are costed accordingly.
components in the bin is constantly changed. Each component in the bin at any moment is assumed to have been purchased at the average price of all components in the bin at that moment. If you are preparing financial accounts you would normally expect to use FIFO or average costs for the valuation of inventory. IAS 2 (revised) does not permit the use of LIFO. You should note furthermore that terms such as AVCO and FIFO refer to pricing techniques only. The actual components can be used in any order.
To illustrate the various pricing methods, the following transactions will be used in each case. TRANSACTIONS DURING MAY 20X7 Market value per unit on Quantity Unit cost Total cost date of transactions Units
$ $ $ Opening balance 1 May 100
2.00 200
Receipts 3 May 400
2.10 840
2.11 Issues 4 May 200
2.11 Receipts 9 May 300 2.12
636 2.15
Issues 11 May 400
2.20 Receipts 18 May 100
2.40 240
2.35 Issues 20 May 100
2.35 Closing balance 31 May 200
2.38 1,916
Receipts mean goods are received into store and issues represent the issue of goods from store. The problem is to put a valuation on the following. (a) The issues of materials (b) The closing inventory How would issues and closing inventory be valued using each of the following in turn? (a) FIFO (b) AVCO 4.4 FIFO (first in, first out) FIFO assumes that materials are
The cost of issues and closing inventory value in the example, using FIFO, would be as follows (note that OI stands for opening inventory). Key terms 138 8: Inventory Part D Recording transactions and events Date of issue Quantity Value issued Cost of issues Units
$ $ 4 May 200 100 OI at $2 200 100 at $2.10 210 410
11 May 400
300 at $2.10 630
100 at $2.12 212
842 20 May
100 100 at $2.12 212 1,464
Closing inventory value 200
100 at $2.12 212
100 at $2.40 240
452 1,916
Note that the cost of materials issued plus the value of closing inventory equals the cost of purchases plus the value of opening inventory ($1,916). 4.5 AVCO (average cost) There are various ways in which average costs may be used in pricing inventory issues. The most common (cumulative weighted average pricing) is illustrated below. The
cumulative weighted average pricing method calculates a weighted average price for all units in inventory. Issues are priced at this average cost, and the balance of inventory remaining would have the same unit valuation.
In our example, issue costs and closing inventory values would be as follows. Total inventory Date Received Issued Balance value Unit cost Price of issue Units
Units Units
$ $ $ Opening inventory
100 200
2.00 3 May
400
840 2.10
500 1,040
2.08 * 4 May
200
(416) 2.08 ** 416
300 624
2.08 9 May
300
636 2.12
600 1,260
2.10 * 11 May
400
(840) 2.10 ** 840
200 420
2.10 18 May
100
240 2.40
300 660
2.20 * 20 May
100
(220) 2.20 ** 220
1,476 Closing inventory
value
200 440 2.20
440
1,916 * A new unit cost of inventory is calculated whenever a new receipt of materials occurs. ** Whenever inventories are issued, the unit value of the items issued is the current weighted average cost per unit at the time of the issue. For this method too, the cost of materials issued plus the value of closing inventory equals the cost of purchases plus the value of opening inventory ($1,916). Yüklə 3,78 Mb. Dostları ilə paylaş:
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