Inventory Accounting and Costing

Objectives:

By the end of the program, participants will be able to:

• Obtain up-to-date rules covering costing and accounting for inventory, and touch base with inventory cycles from purchase to sales.
• Correctly recognize and measure inventory under International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).
• Properly account for write-downs, write-backs and impact of change in inventory accounting policies on financial statements.
• Develop professional judgment in accounting for inventory not on hand.
• Gain knowledge of different inventory cost-flow assumptions and how they affect the company’s financial position and income statement.
• Report and disclose inventory accurately by adhering to internationally recognized conventions.
• Understand inventory cost allocation techniques and cost accounting approaches.

The Content:

Introduction to Inventory

• Current Assets and Inventory Management
• The Four Reasons for Keeping Inventory
• Inventory Cycle from Purchases to Sales:
• Ordering and Receiving
• Sales and Delivery
• Best Practices in Count Process
• Inventory Industry Types: Merchandise, Manufacturing, Construction and Real Estate
• Differences between Inventory, Fixed Assets and Investment Properties
• Understanding and Analyzing Inventory Ratios

Accounting for Inventory

• Perpetual versus Periodic Inventory Methods
• Cost Accounting versus Financial Accounting
• Cost Allocation Techniques:
• Direct Material, Direct Labor and Manufacturing Overhead
• Initial Recognition
• Cost of Purchase, Cost of Conversion and Treatment of Discounts and Rebates Received
• Measurement after Recognition
• Calculating “Net Realizable Value” (IFRS)
• Calculating Market Price Under The “Lower of Cost or Market-LCM” Method (GAAP)
• Estimating and Booking Write-Downs for Slow-Moving and Obsolete Inventory
• Accounting for Write-Backs of Impairment Under IFRS and GAAP
• Accounting for Errors Identified on Physical Count

Accounting for Inventory – Special Topics

• Accounting for Inventory Not on Hand
• On Consignment
• Goods In-Transit: Defining Inco-Terms
• Sold with Right of Return
• Sold Subject to Installation and Inspection
• Sold on a “Bill-and-Hold” Basis
• The Concept of “Inventory Credit”: Inventory Used as Collateral to Raise Finance
• Impact of Accounting Policies Changes on Financial Statements
• Inventory Required Disclosures

Inventory Cost Flow Assumptions

• First-In First-Out (FIFO) and Last-In First-Out (LIFO)
• Weighted Average (WA) and Moving Average (MA)
• Specific Identification (SID)

Inventory Estimation and Cost Accounting Approaches

• Inventory Estimation Techniques
• Gross Profit Method
• Retail Method
• Cost Accounting Approaches
• Traditional Costing versus Activity-Based Costing
• Target Costing versus Cost-Plus Pricing Method
• Standard Cost Accounting
• Throughput Accounting
• Using Excel for Efficient Analysis of Inventory
• Consolidating your Inventory Data
• Validating Data for Accuracy
• Analyzing Slow Moving and Obsolete Inventory
• Tests of Recalculating Weighted Average and Moving Average Costs
• Using Pivot Tables to Efficiently Analyze and Report on Inventory Issues