...HW assignment #2-MGMT640-9040- DR Jiya jain | September 12 2011 | Submit the Homework Assignment (3.2, 3.5, 3.20, & 3.26). | Sunita Goel | Q. 3.2 Inventory accounting: Differentiate between FIFO and LIFO. Ans 3.2 LIFO and FIFO are the 2 most common inventory valuation methods and affects both the balance sheet and income statement. LIFO: last out, or LIFO, calls for the firm to attribute any sale made to the most recently acquired and most expensive inventory. During the inflationary prices period, the firm using this method would have the highest cost of goods sold, the lowest net income and lowest inventory value. FIFO: First in, first out, or FIFO, refers to the practice of recognizing a sale as being made up of inventory that was purchased earlier and having the lowest cost. During rising prices, firm using FIFO will have lowest cost of goods sold, the highest net income and the highest inventory value. FIFO reporting leads to higher current asset value and higher net income. Because inventory valuation methods can have a significant impact on both the income statement and the balance sheet, when financial analysts compare different companies, they make adjustments to the financial statements for differences in inventory valuation methods. Although firms can switch from one inventory valuation method to another, this type of change is an extraordinary event and cannot be done frequently. Q. 3.5 Working capital: Laurel Electronics reported the following...
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...Introduction International accounting standard No.2 (IAS2) "Inventory" gives the rules which should be followed during the recording and presentation of inventory. Inventory refers to goods which are held by a firm for sale, are in the production process or are materials which will be consumed in the production process or in giving out of services. This standard does not apply to financial instruments and it gives out a guideline on how to measure an asset which is categorized as an inventory, which concept constitute of the cost and at what time an expense occurs and the information that should be disclosed while preparing the financial statements (International Accounting Standards Board, 2008, p.977). History In the year 1974 during the draft of standard, the name was changed to "inventories" from "valuation and presentation of Inventories in the Context of the Historical Cost System" the first draft was affected on 1st of January in the year 1995 and this was 21 years after the first draft exposure. On 18th of December 2003, the standard was revised and took effect as from the strart of January 2005. In the year 2003, there was a revised IAS 2 whereby different cost formulas for inventories were incorporated into the standard. These were superseded from SIC 1 on consistency. On December 1997, SIC 1 was issued and was effective as from 1st January 1999. sic 1 required that that the same cost formula was to be used for inventories with the same characteristics under IAS...
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...The choice of inventory accounting methods, specifically for the case of FIFO and LIFO, has developed into a decision, which includes varying consequences and comes with specific implications and benefits, such as communicating private information with FIFO (Hughes, and Schwartz, 1988, p.42) or tax benefits for the choice of LIFO (Morse and Richardson, 1983, p.125). Every firm and manager has to face the decision of which accounting method to choose, and has to include several aspects into their decision making process and weigh the pros and cons in general. However, the empirical evidence (Frankel and Hsu, 2015, p.48) shows some controversies as to what inventory accounting methods firms decided to use in the past, even though the theory would...
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...Accounting for inventory under IFRS and U.S. GAAP ABSTRACT U.S. General Accepted Accounting Standards (U.S. GAAP) and International Financial Reported Standards (IFRS) both give guidance for inventory valuation. This study will give several examples, compare cost flow assumptions and inventory valuation under U.S. GAAP and IFRS, and indicate the possible influences to reported companies and financial information users. INTRODUCTION The U.S. Securities and Exchange Commission (SEC) continues to move forward in its proposed plans to replace U.S. GAAP for U.S. public companies with IFRS. Inventory valuation is important, because inventory is a crucial element not only in the computation of profit, but also in the valuation of assets for balance sheet purposes. Unfortunately, inventory values sometimes are manipulated by management in order to create a more favorable impression. In the following sections, I introduced several differences between U.S. GAAP and IFRS. I also analysis the possible reasons of information manipulation and influence. In section one and section two respectively I will talk about differences in cost flow assumptions and inventory valuation under both methods. I. COST FLOW ASSUMPTIONS Companies typically purchase merchandise at several different prices. Ending inventory equals the quantity on hand multiply the unit acquisition price. If a company use historical cost to determine the cost of inventory and it purchases inventory at different unit prices...
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...BACK FLUSH ACCOUNTING 1.0 Introduction Back flush accounting is one of the accounting systems that support Just in Time system. Just in time is the inventory system that produced the required items at the right time and the right place. Accounting was delay the recording of transaction during process is known as back flush accounting. The system is the transaction was only recorded once the product was completed. Back flush accounting is the system that focuses on the output of organization and then work backwards when allocating costs between costs of goods sold and inventories, with no separate accounting for work in progress. According to ACCA article, in back flush accounting costs are not associated with units until they are completed or sold. Back flush accounting is also called delayed costing, as costs are not allocated to production until after events have occurred. From view by other author, back flush accounting is a costing system that omits recording some of all of the journal entries relating to the cycle from purchase of direct materials to the sales of finished goods (Robert, 2011). According to Grahame Steven, Financial Management 2006, an approach called back flush accounting has been developed to meet the requirement of JIT manufacturing which on it is not a sequential tracking system and does not account for individual transaction. Backflush accounting meshes well with Just-In-Time production system because, according to the Tax Shield Education, both...
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...46 Accounting Standard (AS) 2 (revised 1999) Valuation of Inventories Contents OBJECTIVE SCOPE DEFINITIONS MEASUREMENT OF INVENTORIES Cost of Inventories Costs of Purchase Costs of Conversion Other Costs Exclusions from the Cost of Inventories Cost Formulas Techniques for the Measurement of Cost Net Realisable Value DISCLOSURE Paragraphs 1-2 3-4 5-25 6-13 7 8-10 11-12 13 14-17 18-19 20-25 26-27 The following Accounting Standards Interpretation (ASI) relates to AS 2: ASI 2 - Accounting for Machinery Spares The above Interpretation is published elsewhere in this Compendium. Valuation of Inventories 43 Accounting Standard (AS) 2* (revised 1999) Valuation of Inventories (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the Preface to the Statements of Accounting Standards1 .) The following is the text of the revised Accounting Standard (AS) 2, ‘Valuation of Inventories’, issued by the Council of the Institute of Chartered Accountants of India. This revised Standard supersedes Accounting Standard (AS) 2, ‘Valuation of Inventories’, issued in June, 1981. The revised standard comes into effect in respect of accounting periods commencing on or after 1.4.1999 and is mandatory in nature.2 Objective A primary issue in accounting for inventories is the...
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...Accounting: Text and Cases Managerial Accounting Anthony, Hawkins and Merchant 13th Edition Garrison, Noreen and Bewer 13th Edition Management Accounting 1 2 Because… 3 4 5 6 ! " # 7 Chapter 15 The Nature of Management Accounting 8 Learning Agenda Describe the differences between financial and management accounting Measurement used in management accounting system Textbook problem exercises 9 Differences Between Financial and Managerial Accounting Financial Accounting 1. Users 2. Time focus 3. Verifiability versus relevance 4. Precision versus timeliness 5. Subject 6. Requirements External persons who make financial decisions Historical perspective Emphasis on verifiability Emphasis on precision Primary focus is on the whole organization Must follow GAAP and prescribed formats Managerial Accounting Managers who plan for and control an organization Future emphasis Emphasis on relevance for planning and control Emphasis on timeliness Focuses on segments of an organization Need not follow GAAP or any prescribed format 10 Accounting Differences Financial External focus Whole organization Historical Quantitative Monetary Verifiable GAAP Formal recordkeeping Managerial Internal focus Segments or divisions Current/projected Quantitative/qualitative Monetary and nonmonetary Timely/reasonable estimate Benefits exceed costs Formal and informal recordkeeping 11 Management vs. Financial accounting ...
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...Preamble [Not Part of the Accounting Standards Codification] This HTML transformation of the FASB Accounting Standards Codification is provided by Public.Resource.Org as a public service. Please note that these documents are based on the 2011 printed version of the codification, which is out of date. For the latest, authoritative version of these standards, we recommend you consult https://asc.fasb.org/ which is provided by the Financial Accounting Standards Board. End of Preamble [Not Part of the Accounting Standards Codification] 330 Inventory 10 Overall 00 423 Status 423 General 423 Overview and Background 423 General 423 Objectives 423 General 423 Scope and Scope Exceptions 424 General 424 20 Glossary 424 30 Initial Measurement 425 General 425 Subsequent Measurement 428 General 428 Other Presentation Matters 432 General 432 Disclosure 433 General 433 Implementation Guidance and Illustrations 434 General 434 Status 437 General 437 Subsequent Measurement 437 05 10 15 35 45 50 55 S00 S35 General Disclosure 438 438 Implementation Guidance and Illustrations 438 438 SEC Materials 438 General S99 437 General S55 421 437 General S50 Other Presentation Matters General S45 437 438 905 442 908 Airlines 442 910 Contractors—Construction 442 912 Contractors—Federal Government 442 926 Entertainment—Films 442 930 Extractive Activities—Mining 443 932 Extractive Activities—Oil and Gas 443 976...
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...FIFO and LIFO Accounting Implications of Valuing Inventory under FIFO and LIFO Laura Lance Financial Accounting, ACC211 Instructor Suzanne Lozano 8 December 2011 FIFO and LIFO 1 Accounting Implications of Valuing Inventory under FIFO and LIFO LIFO and FIFO Inventory Accounting Methods The two most common methods of inventory accounting are Last-in-first-out (LIFO), and first-in –first out (FIFO), choosing the correct method of inventory accounting could be detrimental to the income statement and the statement of cash flow, and also it would affect the balance sheet of the company. For a company, it is imperative that they track their inventories and cost of goods sold. Both of these methods of accounting are a way they could do this. LIFO and FIFO are methods used for accounting for the inventory. I will discuss these two different methods. FIFO FIFO is a method that companies use whose inventories are like food or an item that could turn bad if not sold quickly. A company using FIFO normally looks better to investors then they are. It is sort of a false advertisement of higher profit then it should be reflecting. The good part of a FIFO method is that it reflects new purchases and with that would show accurate replacement costs. LIFO LIFO is a method that companies would use if their inventories were not perishable or had a wear out date. If and when cost of the items rise, the higher...
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...disadvantages of accounting for inventory under the perpetual inventory system The major difference between the two methods of recording for inventory accounting systems (perpetual and periodic) is the extent to which stock movements are monitored. The physical system of recording for inventory does not keep records of the movements of stock. The only information in the ledger concerning merchandise is the recording in the stock account of the total inventory determined by a physical stock-take at the end of each accounting period. However, under the perpetual inventory method, individual items of merchandise are recorded on stock cards and a stock control account is kept continuously up to date by recording movements of all inventories into and out of the business. Perpetual inventory involves keeping records of all stock movements throughout the accounting period. (It is also known as the continuous inventory method.) This method updates the balance of stock on hand on a continuous basis throughout the period allowing a greater control over stock. Every time stock moves in or out of the business, the inventory balance is updated. When stock is purchased, the balance is increased. When sales are made, the balance will be decreased. Sales returns have the effect of increasing stock on hand and purchase returns decrease the stock on hand. Withdrawals of inventory by the proprietor must also be accounted for, as this will decrease the balance of stock. As inventory is always recorded...
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...Department of Accounting A Graduation Research Proposal Presented to the Faculty of Commerce The Islamic University of Gaza Prepared By Mosa zuhair al-nassan Mosbah al-shaghnobi Mohammed Nabaheen 120091941 120092552 120102597 Supervisor's name Mr. Salah Shubir 3102 I I A Holy Qur'an Verse A Holy Qur'an Verse } وَقُل اعْمَلُوا فَسَيَرَى اللَّهُ عَمَلَكُمْ وَرَسُولهُ وَالْمُؤْمِنُونَ{ سورة التوبة– اآلية 105 صدق اهلل العظيم I Dedication Dedication We dedicate this work to our lovely Palestine, to second home of Islamic university, and to our parents, who sacrificed everything in their life for us, and also we thank them for pushing us to success. For all of Those, Who are inspiring us and see us on our way. II II Acknowledgement Acknowledgement In the beginning, we thank Allah for giving us the strength and health to let this work see the light and our parents for their help and support. Our Prophet Mohammed said: “Who doesn’t thank people he doesn’t thank Allah”. We want to thank everyone help and participated in making this study starting from our honorable: Mr. Salah Shubair. Who put a lot of faith in our capabilities and encouraged us to complete this study. We thank all of our teachers in the faculty of commerce and our colleagues and friends for their support . III Abstract Abstract The study aims to discuss and evaluate one of the accounting problems, which...
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...Questions 1 ?? Question 2 Four different non-management stake holder groups are likely to be taking relation to their interactions with a business: Tax authorities: they want to know that the company is giving taxes regularly or not. Customers: they are interested in wheather a company like nokia will continue to honor product warranties and support its product lines. Creditors: they use accounting information to evaluate the risks of granting credit or lending money. Labor unions : such as the football league players association want to know whether the owners can pay increased wages and benefits. Questions 3 Limitation of trail balance : * An error of original entry is when both sides of a transaction include the wrong amount.[1] For example, if a purchase invoice for £21 is entered as £12, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for £9 less, so the total of both columns will be £9 less, and will thus balance. * An error of omission is when a transaction is completely omitted from the accounting records.[1] As the debits and credits for the transaction would balance, omitting it would still leave the totals balanced. A variation of this error is omitting one of the ledger account totals from the trial balance.[2] * An error of reversal is when entries are made to the correct amount, but with debits instead of credits, and vice versa.[1] For example, if a cash sale for £100...
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...CHAPTER 14 Managerial Accounting ASSIGNMENT CLASSIFICATION TABLE Brief Exercises 1 A Problems B Problems Study Objectives *1. Explain the distinguishing features of managerial accounting. Identify the three broad functions of management. Define the three classes of manufacturing costs. Distinguish between product and period costs. Explain the difference between a merchandising and a manufacturing income statement. Indicate how cost of goods manufactured is determined. Explain the difference between a merchandising and a manufacturing balance sheet. Identify trends in managerial accounting. Prepare a worksheet and closing entries for a manufacturing company. Questions 1, 2, 3 Do It! 1 Exercises 1 *2. 4, 5, 6, 7, 8 11, 12 2, 3 1 *3. 4, 5, 7 2 2, 3, 4, 5, 6 3, 4, 5, 7, 13 8, 12, 13, 14, 15, 17 1A, 2A 1B, 2B *4. 13 6 2 1A, 2A 1B, 2B *5. 9, 14 3A, 4A, 5A 3B, 4B, 5B *6. 15, 16, 17, 18 8, 10, 11 3 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 14, 15, 16, 17 3A, 4A, 5A 3B, 4B, 5B *7. 10, 19, 20, 21 9 3A, 4A 3B, 4B *8. 22, 23, 24 25, 26 27, 28, 29 12 4 18 *9. 19 6A *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter. Copyright © 2011 John Wiley & Sons, Inc. Kimmel, Accounting, 4/e, Solutions Manual (For Instructor Use Only) 14-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A Difficulty Level Simple Time Allotted (min.) 20–30 Description Classify manufacturing costs into different...
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...accounting issue memorandUM to: Audit files FROM: [YOUR NAME], MEMBER OF AUDIT TEAM FOR PARKER & PROCK APPROVED BY: FRANK REEDY, ENGAGEMENT MANAGER ON AUDIT FOR PARKER & PROCK SUBJECT: TREATMENT OF MANUFACTURING OVERHEAD COSTS AT PARKER & PROCK FOR YEAR ENDING DECEMBER 31, 2013 DATE: JANUARY 16, 2014 CC: CLAIRE ALLYSON, CONTROLLER, PARKER & PROCK In performing the audit planning for the audit of Parker & Prock (P&P) for the year ending December 31, 2013, we discovered that P&P has an accounting policy that results in only direct manufacturing labor and direct material costs being included in the cost of manufactured inventory. Furthermore, this accounting policy results in all other costs, including those properly categorized as “manufacturing overhead,” being accounted for as period costs that are being expensed as incurred. This accounting policy has the effect of understating inventory balances at period end and as well as understating the cost of goods sold and overstating operating expenses for the period. P&P is a private company. Prior to undertaking tests of inventory balances, we determined that a review of P&P’s inventory accounting policy was warranted. The subject of this review is to research whether P&P’s treatment of manufacturing overhead is in accordance with generally accepted accounting principles (GAAP). In performing our research we used the FASB Accounting Standards Codification (the Codification). Within the Codification we identified...
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...explanation , accounting information system is the system of records a business keeps maintaining its accounting system . It is a system of collecting and processing transactions data and disseminating financial .Thus when accountants first started to keep journals for a company, all that was used were pencil and paper, and then came the calculator. Now accounting information system is there to provide all kinds of information to the management. It helps in key management functions of planning, organizing, leading, and evaluating as they...
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