FRA : Reading 27. Inventories

Reading 27. Inventories

Merchandising firms : inventory is reported in one account 

Manufacturing firms : three accounts(raw materials, work-in-process, finished goods) 

begin inv + purchase = COGS + end inv

 

a. Distinguish between costs included in inventories and costs recognized as expenses in the period in which they are incurred  

- purchase cost, conversion(labor, overhead(간접비)) costs, freight_in cost 등

재고자산의 생산 원가로 들어가서 capitalized cost임

- abnormal waste, storage cost, administrative cost 등

이 후 관리에 들어가는 비용은 period cost 처리

 

b. Describe different inventory valuation methods 

 

FIFO

- Ending 재고자산이 현행원가(대체원가)와 비슷

LIFO

- US-GAAP만 인정

- COGS가 현행원가와 비슷

 

Weighted average cost 

- COGS and inventory values are between FIFO and LIFO 

 

Specific identification

- 상품하나하나 매입가격 정확히 매입원가 계산

 

c. Calculate and compare cost of sales, gorss profit, and ending inventory using different inventory valuation methods and using perpetual and periodic inventory systems  

periodic

- 재고자산 평가일에 한 번에 계산

perpetual

- 팔 때마다 대응해서 계산

d. Calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods

In inflation period,

	LIFO	FIFO
COGS	Big
Gross profit		Big
Inventory		Big
Tax		Big
Cash flow	Big
Inventory turnover (Sales/Inventory)	Big

  

e. Explain LIFO reserve and LIFO liquidation and their effects on financial statements and ratio

f. Convert a company’s reported financial statements from LIFO to FIFO for purposes of comparison

LIFO reserve

- LIFO reserve = FIFO.INV – LIFO.INV

- LIFO reserve 반드시 공시 사항

- FIFO COGS = LIFO COGS - (End LIFO reserve - Beg LIFO reserve)

= End LIFO reserve - Begin LIFO reserve = LIFO COGS - FIFO COGS

 

Effect on ratios

- 물가가 상승(하락)하는 경우, COGS, Inventory의 가치 변화를 고려해서 계산

 

LIFO liquidation

- 당해 purchase보다 판매가 훨씬 많아서 아주 오래된 재고품을 사용하면서 COGS가 급격히 낮아지고 profit이 많이 찍히게 되는 현상

- artificially 이익조작에 이용가능

g. Describe the measurement of inventory at the lower of cost and net realisable value

Inventory valuation method 

Lower of cost or NRV

- IFRS

- Inventory's original cost(Book value) 와 NRV를 비교해서 낮은 값 사용

- NRV(net realizable value) = selling price - selling cost

- write up 허용하지만 기존의 book value 이상으로 상승 못함

 

Lower of cost or Market

- US-GAAP

- Book value 와 Market value를 비교해서 낮은 값 사용

- Market value = NRV vs Replacement cost vs (NRV – Normal profit margin) 중 중간 값!

 

h. Describe implications of valuing inventory at net realizable value for financial statements and ratios

- Inv 감소, I/S에 비용처리 되는 것으로 파생되는 영향

 

i. Describe the financial statement presentation of and disclosures relating to inventories

- The cost flow method (LIFO, FIFO, etc.) used.

- Carrying value of inventories pledged as collateral.

- Amount of inventory write-downs during the period.

- Inventory cost flow methods가 변경되는 경우, accounts priciples의 변경이기 때문에 retrospectively 전에 것 까지 소급하여 모두 고친다.

 

j. Explain issues that analysts should consider when examining a company’s inventory disclosures and other sources of information.

- 재고자산의 성격별로 증감을 보고 제품의 수요에 대한 전망 분석

- 완성 재고 증가, raw재고 감소 : 향후 수요 감소 및 write down 예상

- raw 재고 증가 : 향후 수요 증가

 

k. Calculate and compare ratios of companies, including companies that use different inventory methods.

- Inv T.O too low : obsolete inventory risk

- Inv T.O too high : inadequate inventory

 

l. Analyze and compare the financial statements of companies, including companies that use different inventory methods 

p.175 example 참조