IA 1 (14-Retail Inventory Method)

What does PAS 2, paragraph 22 state about the retail inventory method?

It states that this method is for measuring inventory of a large number of rapidly changing items with similar margins where it is impracticable to use other costing methods.

What does the term retail mean in the context of inventory?

The term retail simply means the original retail or sales price, which is the price at which the goods are first offered for sale.

What is markdown in retail?

Markdown is a decrease in sales price below the original sales price.

What is maintained markup?

Maintained markup is the difference between cost and sales price after adjustment for all markup and markdown items.

What is the conservative approach in the retail inventory method?

The conservative approach includes net markup and excludes markdown in determining the cost ratio to arrive at a conservative cost.

Is the ending inventory at retail the same whether using the conservative approach or average approach?

False, they may yield different ending inventory values.

What is the average cost approach?

The average cost approach includes both net markup and net markdown in determining the cost ratio.

What does the conservative cost signify compared to the average cost?

The conservative cost is greater than the average cost.