How to measure the acquisition cost of property, plant and equipment?

According to the FASB, “the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use.” In terms of property, plant, and equipment, this means that all the reasonable and necessary costs required to get the asset to its location and ready …

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Comparison Between Different Cost Flow Assumptions

Presented below is a comparison of the effect of the FIFO, average cost, and LIFO cost flow assumptions on ending inventory, cost of goods sold, and gross margin for the Cerf Company (we have not included specific identification in this comparison because of its limited use). The highest gross margin and ending inventory and lowest …

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Application of different Cost Flow Assumptions

The data for the Cerf Company shown below will be used to demonstrate the computations required to apply three cost flow assumptions and the specific Identification method. Three points should be made about this example. First, It is simplistic in that only six purchases are made during the year. However, the procedures In this example …

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Lower of Cost or Market (LCM) Theory

What is meant by Lower of cost or market? Lower of cost or market is a method of inventory pricing by which the inventory is priced at cost or market, whichever is lower. It is an application of conservatism in accounting. Explanation Under generally accepted accounting principles (GAAP), the presumption is that inventories will be …

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Perpetual Inventory System

What is a Perpetual Inventory System? – Definition: Perpetual inventory system is a method of accounting for inventory where transactions are recorded and reported as soon as they take place. Usually, in this inventory system, computerized systems and software are used to immediately record the sales and purchases. Explanation: Before advancements in technology, companies would …

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Objectives and techniques of inventory management

Inventory is an important item of current Assets which also form an important element of firm’s working capital. The capable finance manager will follow proper balance of inventories needed for production schedule and this ultimately suits the interests of its valued customers. The management of inventories faces the following two basic problems. (a) Management of …

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Inventory Management

Definition Inventory Management refers to fixation of minimum and maximum limits, determining the size of inventory to be maintained. Consideration regarding issue prices, norms of receipts and inspection, determining the EOQ, providing proper store facilities and keeping an effective check on obsolescence are some of the considerations which are covered under inventory management. Inventories are …

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