Financial Accounting: A User Perspective 6th Canadian Edition

chapter 7

INVENTORY

USER RELEVANCE

EXAMPLES OF INVENTORY

INVENTORY RECOGNITION AND COST OF GOODS SOLD

VALUATION CRITERIA

Historical Cost

Market Value

What Is Canadian Practice?

ACQUISITION COSTS

Lower of Cost and Net Realizable Value

INVENTORY SYSTEMS

Perpetual Inventory Systems

Periodic Inventory Systems

Cost and Benefits of System Choice

COST FLOW ASSUMPTIONS

First-In, First-Out (FIFO)

Moving Average

Cost Flow Assumption Choice

INVENTORY ISSUES FOR MANAGEMENT

INVENTORY ESTIMATION

Using the Cost-to-Sales Ratio

STATEMENT ANALYSIS CONSIDERATIONS

Inventory Turnover

Other Ratios

SUMMARY

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Discuss the importance of inventory to a company's overall success.
2. Describe the valuation criteria for inventory in Canada.
3. Describe how the lower of cost and net realizable value rule is applied to inventory.
4. Explain the difference between the perpetual inventory system and the periodic inventory system.
5. Discuss some criteria that companies use when choosing an inventory system.
6. Describe the two cost flow assumptions and calculate cost of goods sold and ending inventory under each.
7. Describe management's responsibility for internal control measures related to inventory.
8. Estimate a value for ending inventory using the cost-to-sales ratio method.
9. Calculate the inventory turnover ratio and explain how it can be interpreted by users.

Selling Seeds from P.E.I.

In 1939, Veseys Seeds first began operations, filling orders using ...