Inventory Valuation Acc 3/4 Ch9

cost of inventory

all costs incurred in order to bring inventory into a condition and location ready for sale

what does cost of inventory include?

freight inwards

modifications

customs/import duties

buying expenses.

NOT GST!

unit cost

the cost price of each individual item/unit of inventory

product cost

a cost incurred in order to bring inventory into a condition and location ready for sale that can be logically allocated to individual units of inventory

period cost

a cost incurred in order to bring inventory into a condition and location ready for sale that cannot be logically allocated to individual units of inventory

other expenses

expenses incurred that are not the direct result of regular trading activities of a business.

not included in cost price of inv card, seperate expense ledger account is created, reported as other expenses in income statement, decreases profit in balance sheet

Impact of period costing vs product costing on profit and balance sheet?

If all items are sold → no difference in profit (all costs expensed)

If not all items are sold →

Profit is lower under period costing (all costs expensed immediately)

Inventory value is lower on Balance Sheet (costs not included in inventory)

With reference to an accounting assumption, explain why capital contributions are recorded at fair value.

Under the Entity Assumption, the Fair Value will be adopted. This represents the value at which the item would have been sold at the time at which it was contributed. The business and the owner are assumed to be separate for Accounting purposes. Fair Value is the value at which the business acquired the asset, rather than the value at which the owner

purchased the asset.