Professional Documents
Culture Documents
INVENTORIES
Inventory is an asset held for resale in the normal course of business. The distinction
between inventory and an operating asset is the intent of the owner. For example, for a company
that produce computers, some of the computers that it owns are operating assets because they are
used in various activities of the business such as the payroll and accounting functions. Many of
the computers owed by these company are inventory, however, because the company intends to
sell them.
A retail firms inventory, generally, will consist only of products purchased that have not
been sold yet; and in the balance sheet they use a single account for inventory, titled
Merchandise Inventory.
A manufacturing entity will have three different types of inventory: raw materials, work
in process and finished goods.
Direct materials or raw materials enter in a production process in which they are transformed
into a finished product by the addition of direct labor and manufacturing overhead. At any point
in time, including the end of an accounting period, some of the materials have entered the
process and some labor costs have been incurred but the product is not finished. The cost of
unfinished products is called work in process or work in progress. Inventory that has completed
the production process and is available for sale is called finished goods.
Raw materials are purchased to be consumed. Finished goods are produced to be sold.
Merchandise are bought to be sold.
EVALUATION OF RAW MATERIALS AT THE CONSUMPTION MOMENT USING FIFO,
LIFO AND WAC
Company ABC disclose the following statement for the raw material M during december 2005:
initial balance at 1st Dec
1500 kg*6750 lei;
aquisitions
- 10.12.2005
1000 kg*7000 lei;
- 25.12.2005
1500 kg*7100 lei;
consumptions
- 2.12.2005
340 kg;
- 7.12.2005
590 kg;
- 12.12. 2005
465 kg;
- 19.12.2005
575 kg;
- 29.12.2005
640 kg.
a) Computation of the monthly WAC:
WAC = (initial balance + aquisitions in units) / (initial balance +aquisitions in value) =
Consumptions:
- 2.12.2005
340 kg*6943,75 lei = 2360875 lei;
- 7.12.2005
590 kg*6943,75 lei = 4096812 lei;
- 12.12.2005
465 kg*6943,75 lei = 3228844 lei;
- 19.12.2005
575 kg*6943,75 lei = 3992656 lei;
- 29.12.2005
640 kg*6943,75 lei = 4444000 lei.
Total consumptions
18123187 lei.
9651813 lei
QUANTITY
01.12
02.12
07.12
10.12
12.12
19.12
25.12
29.12
31.12
_
340
590
+ 1000
465
575
+ 1500
640
_
UNIT
PRICE
VALUE
_
6750
6750
7000
6909,24
6909,24
7100
7050,2
_
_
2295000
3982500
+ 7000000
3212790
3972813
10650000
4512128
_
VALUE
10125000
7830000
3847500
10847500
7634710
3661897
14311897
9799769
9799769
QUANTITY
UNIT
PRICE
VALUE
01.12
02.12
07.12
10.12
_
340
590
+ 1000
_
6750
6750
7000
_
2295000
3982500
+ 7000000
12.12
465
6750
3138750
19.12
105
470
575
+ 1500
6750
7000
7100
708750
3290000
3998750
10650000
530
110
640
_
7000
7100
_
_
3710000
781000
4491000
_
25.12
29.12
31.12
530
1500
2030
1390
7000
7100
_
7100
3710000
10650000
14360000
9869000
1390
7100
9869000
d) LIFO:
CHANGES
DATE
UNIT
PRICE
QUANTITY
VALUE
01.12
02.12
07.12
10.12
_
340
590
+ 1000
_
6750
6750
7000
_
2295000
3982500
+ 7000000
12.12
465
7000
3255000
19.12
25.12
535
40
575
+ 1500
7000
6750
_
7100
3745000
270000
4015000
10650000
29.12
640
7100
4544000
31.12
530
1500
2030
530
860
1390
1390
6750
7100
_
6750
7100
_
_
3577500
10650000
14227500
3577500
6106000
9683500
9683500
FG
18000
14000
SALE OF MERCHANDISE
Initial balance of merchandise = 6000 mu
Current purchase at 20000 mu
Selling merchandise for the price of 28000 mu, acquisition cost 25000 mu
a) acquisition of merchandise:
Merchandise =
b) sale:
Cash
Revenues
Suppliers
20000
28000
c) disposal:
Merchandise
25000