maintain assetsppt2t
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Learning Outcome: Comply with organisational asset
acquisition proceduresReconcile asset register and inventory
records to general ledgersRecord inventory flowsRecognise new assets and asset
categoriesPrepare schedules and ad hoc reportsRecord disposal of fixed assets
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Comply with organisational asset acquisition procedures
Approval and authorisation for purchase of assets is obtained
Quotes are obtained and other organisational purchase procedures are followed
All asset purchases documentation and invoices are reconciled.
Assets received are checked for compliance with the quantity and quality as per documentation
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Asset Any item of economic value owned by an
individual or corporation, especially that which could be converted to cash.
Example:Cash Securities Account receivable Inventory office equipment Real estate Car Other property
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Types of Assets Current Assets Non-current AssetsCurrent Assets: Asset that is to be converted
to cash within 12 months of the balance sheet date.
Non-Current Assets: Asset that is not to be converted to cash within
12 months of the balance sheet date.Resource that is not expected to be consumed
or sold within the normal operating cycle of a firm, such as equipment, machinery and plant.
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TANGIBLE AND NON TANGIBLE ASSETS Tangible Assets: Assets that have a physical existence,
or give the holders definite set of financial rights are classified as tangible assets, as opposed to intangible assets such as patents and goodwill. Examples of tangible assets include land, machinery, bank deposits and investments.
Intangible Assets: An asset that is not physical in nature. Corporate intellectual property (items such as patents,trademarks,copyrights,businessmethodologies),goodwill and brand recognition are all common intangible assets in today's marketplace
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RECONCILE ASSET REGISTER & INVENTORY RECORDS TO GENERAL LEDGERS
All asset expenditures are reconciled in accordance with organisation’s policies, procedures and practices to the accounting records.
Discrepancies are identified and actioned according to organisation’s policies, procedures and practices.
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Record inventory flowsPurchase of inventory is recorded in
subsidiary ledger Asset register is established and
maintained Periodic and perpetual records are
maintained Inventory flow assumptions are
applied as appropriate Inventory is valued using appropriate valuation rules
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Recognise new assets and asset categoriesNew asset categories are identified where
appropriate Proforma for input of asset details is
prepared and processed accurately and in a timely fashion
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Record disposal of fixed assetsAssets are disposed of in accordance with
organisational procedures, relevant legislative requirements and under supervision of appropriate persons.
Disposal price data is obtained and entered into accounting records.
Accounting procedures are followed for the removal of assets from ledger and asset register
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Documentation
Purchase requisitions Purchase orders Quotes Delivery reports Invoice from suppliers
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Asset expenditures Inventory Materials Equipment Land and buildings Freight in Insurance in transit Installation and testing costs
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Organisation’s policies, procedures and practicesMaintenance of capital expenditure items Preparation of reconciliation reports Stock takes Inventory management
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Ad hoc reportsDepreciation schedule Asset register Total purchase and disposals for a period Spreadsheets Output from dedicated fixed asset software Inventory turnover analysis
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Relevant legislation Consumer Credit Code Privacy Act Secrecy Laws Australian Consumer and Competition
Commission (ACCC) Financial Institutions (FI) Code Credit Reference Association of
Australia (CRAA) Australian Accounting Standards Stamp Duties Act Taxation Assessment Act Bills of Exchange Act
Electronic Funds Transfer (EFT) Code of Conduct Financial Transaction Reports Act Cheques and Payment Orders Act Corporate Law Commercial Tenancies Act Land Tax Assessment Act Prescribed Payments Act Payroll Tax Assessment Act
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Disposal price data
Cash Cost of removal Restoration expenses Trade-in amount Other costs associated with disposal
What Is Inventory?Stock of items kept to meet future demandPurpose of inventory management
how many units to orderwhen to order
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Types of InventoryRaw materialsPurchased parts and suppliesWork-in-process (partially completed)
products (WIP)Items being transportedTools and equipment
Inventory CostsCarrying costCarrying cost
cost of holding an item in inventorycost of holding an item in inventoryOrdering costOrdering cost
cost of replenishing inventorycost of replenishing inventoryShortage costShortage cost
temporary or permanent loss of sales temporary or permanent loss of sales when demand cannot be metwhen demand cannot be met
Inventory Control SystemsContinuous system (fixed-order-Continuous system (fixed-order-
quantity)quantity)constant amount ordered when constant amount ordered when
inventory declines to inventory declines to predetermined levelpredetermined level
Periodic system (fixed-time-Periodic system (fixed-time-period)period)
order placed for variable amount order placed for variable amount after fixed passage of timeafter fixed passage of time
Merchandising Operations
Cost of goodssold
$$$
Merchandise Inventory
Purchases C/G/Sold
Inventory Cost Flows
Inventory control is important for:1. Ensuring availability of inventory items2. Preventing excessive accumulation of
inventory items
The perpetual system maintains a continuous record of inventory changesThe periodic system updates inventory records only periodically
Inventory Control
Purchases are debited to Inventory account
Freight-in, Purch. R & A and Purch. Disc. are recorded in Inventory account.
Debit COGS and credit Inventory account for each sale.
Purchases are debited to Purchases account.
Freight-in, Purch. R & A and Purch. Disc. are recorded in their respective accounts.
COGS is computed only periodically:
COGAS- Ending Inventory
COGS
Perpetual Method Periodic Method
Inventory Systems
Legal title to goods typically determines inclusion.The following goods are included in “seller’s” inventory:
1. Goods in transit (FOB Destination)2. Goods on consignment with consignee3. Goods, sold under buy back agreements 4. Goods, sold with high rates of return5. Installment sales (if bad debts can not be
estimated)
Items to be Included in Inventory
Generally accounted for on a cost basis.Product costs are “inventoriable” costs,
whereasPeriod costs are not inventoriable costs
Abnormal inventory costs are accounted for as period costs
Costs Included in Inventory
The objective is to most clearly reflect periodic income.Cost flow assumptions need not be consistent with physical flow of goods.The cost flow assumptions are:
1 Specific identification 2 Average cost3 First-in, first-out (FIFO) and 4 Last-in, first-out (LIFO)
Cost Flow Assumptions
Susieworld reports the following transactions for 2004:
Date Purchases Purchase CostMay 12 100 units $1,000Aug 14 200 units 2,200Sep 18 120 units 1,800
420 units $5,000On December 31, the company had 20 units on hand and uses the periodic inventory system. What are the cost of goods sold and the
cost of ending inventory?
Cost Flow Assumptions: Example
Given Data:Date Purchases CostMay 12 100 units $1,000
Aug 14 200 units $2,200
Sep 18 120 units $1,800420 units $5,000
Steps:
1. Calculate per unit average cost: $5,000/420 = $11.905
2. Apply this per unit average cost to units sold to get COGS: 400 x $11.905 = $4,762
3. Apply the per unit average cost to units remaining in inventory to determine Ending inventory: 20 x $11.91 = $238
Average (Weighted) Method
Given data: Date Purchases CostMay 12 100 units @ $10$1,000Aug 14 200 units @ $11$2,200Sep 18 120 units @ $15$1,800 420 $5,000
Cost of goods sold $4,700
20 * $15 = $300Ending inventory$5,000
Cost of goodsavailable
Cost of goods sold (FIFO)$1,000 (100 sold)$2,200 (200 sold)$1,500 (100 sold; 20 end inv)$4,700
First-In, First-Out (FIFO) Method
Cost of goods sold $4,800
20 * $10 = $200Ending inventory$5,000
Cost of goodsavailable
Cost of goods sold (LIFO)$ 800 (80 sold; 20, end inv)$2,200 (200 sold)$1,800 (120 sold)$4,800
Given data: Date Purchases CostMay 12 100 units @ $10$1,000Aug 14 200 units @ $11$2,200Sep 18 120 units @ $15$1,800 420$5,000
Last-In, First-Out (LIFO) Method
The ending inventory in units is the same in all three methods: the cost is different.
The cost of goods sold and the cost of ending inventory are different, but
The cost of goods available is the same in all three methods.
LIFO would result in the smallest reported net income (with rising prices).
Cost Flow Assumptions: Notes
Cost of Goods Sold (COGS)Beginning Inventory + Cost of additional
Inventory manufactured or purchased during the year – Ending Inventory.
For Example: $14,000 cost of inventory at beginning of year+ $8,000 cost of additional inventory purchased during year- $10,000 ending inventory= $8,000 cost of goods sold.
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LIFO METHODLIFO, which stands for "last-in-first-out," is
an inventory costing method which assumes that the last items placed in inventory are the first sold during an accounting year.
Thus, the inventory at the end of a year consists of the goods placed in inventory at the beginning of the year, rather than at the end. LIFO is one method used to determine Cost of Goods Sold for a business
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Example : lifo method Batch 1: Quantity 2,000 pieces, Cost to produce $8000 Batch 2: Quantity 1500 pieces, Cost to produce $7000 Batch 3: Quantity 1700 pieces, Cost to produce $7700 Let's say you sold 4000 units during the year, out of the 5200 produced.
Then calculate the unit costs for each batch:Batch 1: 8000/2000 = 4
Batch 2: 7000/1500 = 4.667 Batch 3: 7700/1700 = 4.529
So, of the 4000 units sold, using LIFOThe first 1700 units sold from the last batch cost $4.529 per unitThe next 1500 units sold from the second batch cost $4.667 per unit
And the last 800 units sold from the first batch cost $4. The cost of the remaining 1200 units from the first batch is $4 each. These units will start off
the next year.
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FIFO METHODFIFO, which stands for "first-in-first-out," is an inventory
costing method which assumes that the first items placed in inventory are the first sold.
Thus, the inventory at the end of a year consists of the goods most recently placed in inventory. FIFO is one method used to determine Cost of Goods Sold for a business.
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EXAMPLE: FIFO METHOD Batch 1: Quantity 2,000 pieces, Cost to produce $8000 Batch 2: Quantity 1500 pieces, Cost to produce $7000 Batch 3: Quantity 1700 pieces, Cost to produce $7700 Let's say you sold 4000 units during the year, out of the 5200 produced.
Then calculate the unit costs for each batch:Batch 1: 8000/2000 = 4
Batch 2: 7000/1500 = 4.667 Batch 3: 7700/1700 = 4.529
So, of the 4000 units sold, using FIFOThe first 2000 units sold from the first batch cost $4 per unit.
The next 1500 units sold from the second batch cost $4.667 per unit.
And the last 500 units sold from the third batch cost $4.529. The cost of the remaining 1200 units from the third batch is $4.529. These units will start off
the second year.40
PERPETUAL METHOD OF INVENTORY Any business that keeps real-time information on inventory levels and that tracks inventory on
an item-by-item basis is using the perpetual method. For example, retail locations that use barcodes and point-of-sale scanners are utilizing the perpetual inventory method.
Advantage:
First, it allows a business to see exactly how much inventory they have on hand at any given moment, thereby making it easier to know when to order more.
Second, it improves the accuracy of the company’s financial statements because it allows very accurate recordkeeping as to the cost of goods sold over a given period. (CoGS will be calculated, quite simply, as the sum of the costs of all of the particular items sold over the period.
Disadvantage:The primary disadvantage to using the perpetual method is, of course, the
cost of implementation.
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Periodic Method of InventoryThe periodic method of inventory is a system in
which inventory is counted at regular intervals (at month-end, for instance). Using this method, a business will know how much inventory it has at the beginning and end of every period, but it won’t know precisely how much inventory is on hand in the middle of an accounting period.
A second drawback of the periodic method is that the business won’t be able to track inventory on an item-by-item basis, thereby requiring assumptions to be made as to which particular items of inventory were sold
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Assets Register An Assets Register is a management tool
used to record the description of the asset, location, ownership details, quantity, condition and certain financial information relating to the asset valuations.
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Asset AcquisitionA buyout strategy in which key assets of the target
company are purchased, rather than its shares.
This is particularly popular in the case of bankrupt companies, who might otherwise have valuable assets which could be of use to other companies, but whose financing situation makes the company unattractive for buyers (an asset acquisition strategy may be pursued in almost any case where the potential target company has an unattractive financing structure.
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