1. Our learning in the Previous Class…

2. We learnt …

3. What costs to be included in inventory?

5. COSTS OF PURCHASE… Cost of purchases includes all those expenses that are incurred to bring the raw material at the desired location.

9. What are inventory systems?

10. If we record transactions related to inventory INSTANTANEOUSLY , then we are using a System of Inventory which is known as … PERPETUAL INVENTORY SYSTEM

11. And, if we are recording transactions related to inventory periodically then, it is called … PERIODIC INVENTORY SYSTEM .

12. How to find the Value of Inventory ?

13. The issue of Inventory Valuation requires… … an assumption about the flow of inventory so that we can judge the flow of cost of inventory!!!

15. Any question?

16. Now, let’s proceed further…

21. Interesting things about LIFO ?

23. LIFO Layers Example 20 units from 2004 + 30 units from 2005 20 units from 2004 + 30 units from 2005 + 40 units from 2006

26. Other Methods of Inventory Valuation ?

29. Retail Inventory Method Step 3 Cost to retail ratio Ending inventory at retail Estimated ending inventory at cost = × Step 2 Goods available for sale at retail Goods available for sale at cost = ÷ Cost to retail ratio Step 1 Net sales at retail Goods available for sale at retail – = Ending inventory at retail

30. Retail Inventory Method

31. Retail Inventory Method

32. Retail Inventory Method

34. Example: Gross Profit Method Assume the following data: Beginning inventory, January 1 Rs. 25,000 Purchases, January 1 through January 31 40,000 Sales, January 1 through January 31 50,000 Historical gross profit percentage 40%

35. Gross Profit Method Sales (actual) Rs. 50,000 100% Gross profit (estimate) Rs. 20,000 40% Cost of goods sold (estimate) Rs. 30,000 60% Beginning inventory (actual) Rs. 25,000 + Purchases (actual) 40,000 = Cost of goods avail for sale (actual) 65,000 = Ending inventory (estimate) 35,000 - Cost of goods sold (estimate) 30,000

37. What are the impact of ERRORS in Inventory Valuation ?

38. Ending Inventory Errors If ending inventory is ... Cost of Goods Sold is ... Profit is ... Overstated Understated Overstated Understated Overstated Understated

39. How to REPORT Value of Inventory in Financial Statements ? Indian Accounting Standard – AS 2

41. Remember, The value of Closing Inventory in the Balance Sheet is always to be shown at the cost or the Net Realizable Value.

42. How to DISCLOSURE Value of Inventory in Financial Statements ?