Accounting for inventory (Essay Sample)

Requirement 1: I do not agree with Sue’s arguement.The arguement that LIFO produces the lowest income and lowest income tax in a period of rising prices is right .But LIFO method is forbid by AASB. The last-in , first-out (LIFO)method assumes that the costs of the last items purchased should be allocated to the first items sold and that the cost of ending inventory should be the cost of the goods purchased earliest.TheLIFO method allocates the most recent and the highest prices to cost of goods sold, resulted in the lowest gross margin.and lowest income tax. At the same time, LIFO method has some disadvantages: the calculation workload is very big, and a greater likelihood of LIFO method liquidation ,therefore the influence of the LIFO method liquidation will be more prominent. Requirement 2:I do not agree with Harry’s arguement.The specific identification method identifies the cost of each item at the ending accounting period . It can be used only when it is possible to identify the units in ending inventory for specific purchases.It appears logical, and it can be used by companies that deal in high-priced articles, such as works of art, precious gems, or rare antiques. Computer World company deals in items that are identical but that it bought at different prices, deciding which items were sold becomes arbitrary.  For these reasons,the specific identification method is not good for Computer World company .   Requirement 3: I do not agree Lee’ argument. It can not change valuation methods from time to time . It is not good for comparison of financial statement . The first-in, first-out (FIFO) method assumes that the costs of the first items acquired should be assigned to the first items sold. The costs of the goods in ending period at the end of a period are assumed to be from the most recent purchases,and the costs assigned to goods that have been sold are assumed to be from the earliest purchases. Its advantage is that companies cannot choose to adjust the current profits and inventory valuation ,In the case of inflation, FIFO method inflated profits, and increase the enterprise's tax burden, is not conducive to enterprise capital preservation. The workload is tedious. One of accounting conventions is consistency , which means a company adopts the same accounting methods over successive time periods. It is good for comparing the financial position of the different accounting periods. Requirement 4a :Reducing inventory cost can also be from the following aspects: Firstly , Joint purchasing and purchasing online ,as margin between wholesale and retail price, the greater the number of procurement, the lower price .which enhance the collective strength of price negotiation. Through information sharing on Internet can maximum satisfy the requirement of enterprise order.Through the Internet can reduce artificial factors and information is not clear, in the largest extent, reduce the purchasing cost. Secondly,Logistics cost management.Logistics resources is beneficial to strengthen the inventory management of all resources.Including storage resources, human resources, information resources and management resources, power resources, etc.Logistics resources, make full use of it or not, directly affects the amount of economic procurement, warehouse inventory and inventory storage costs. Thirdly,maintaining the stability of the production, A reasonable inventory, reduce the urgent purchase the number of times. Reduce all kinds of inventory management cost, make the inventory at a reasonable level, often prevent overstock .At the same time, it can reduce inventory capital takes up,make the lowest total inventory cost, achieve the goal of saving a lot of money ,enhance the competitiveness of enterprises. Requirement 4b: Harry’s statement is right. Because FIFO method has no different effect on the ending inventory for Periodic system and Perpetual system, the ending inventories are the same. So the COGS are the same too. Requirement 4c:Sue is statement is right. Under LIFO method, if after the transaction, there is anther purchase, for periodic Inventory System adopts a backward method to calculate the COGS.However, with FIFO method in Perpetual system , COGS is decided by the purchase before transaction , rather then the purchase after transaction, so COGS are different . The different COGS leads different inventory . Requirement 4d Perpetual Inventory System---FIFO Method Jun 1 Inventory 160 units @ $300.00 2 Purchase 440 units @ $320.00 3 Sale 160 units @ $300.00 400 units @ $320.00 Balance 40 units @ $320 25 Purchase 400 units @ $340 30 Inventory 40 units @ $320.00 400 units @ $340.00 The ending inventory = 40units×$320+400units×$340=$148800 The cost of goods sold = 160units×$300+400units×$320=$176000 Per...