Maintain Assetsppt2t

Learning Outcome: Comply with organisational asset acquisition procedures Reconcile asset register and inventory records to general ledgers Record inventory flows Recognise new assets and asset categories Prepare schedules and ad hoc reports Record disposal of fixed assets

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

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

Types of Assets Current Assets Non-current Assets Current 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.

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

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.

Record inventory flows Purchase 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

Recognise new assets and asset categories New asset categories are identified where appropriate Proforma for input of asset details is prepared and processed accurately and in a timely fashion

Prepare schedules and ad hoc reports Spreadsheets/ ad hoc reports are prepared as requested

Record disposal of fixed assets Assets 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

Documentation Purchase requisitions Purchase orders Quotes Delivery reports Invoice from suppliers

Asset expenditures Inventory Materials Equipment Land and buildings Freight in Insurance in transit Installation and testing costs

Organisation’s policies, procedures and practices Maintenance of capital expenditure items Preparation of reconciliation reports Stock takes Inventory management

Inventory valuation rules First in- first out Weighted average Specific identification

Inventory flow assumptions Cost Net realisable value Calculations based on gross margins

Ad hoc reports Depreciation schedule Asset register Total purchase and disposals for a period Spreadsheets Output from dedicated fixed asset software Inventory turnover analysis

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

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 demand Purpose of inventory management how many units to order when to order

Types of Inventory Raw materials Purchased parts and supplies Work-in-process (partially completed) products (WIP) Items being transported Tools and equipment

Inventory Costs Carrying cost cost of holding an item in inventory Ordering cost cost of replenishing inventory Shortage cost temporary or permanent loss of sales when demand cannot be met

Inventory Control Systems Continuous system (fixed-order-quantity) constant amount ordered when inventory declines to predetermined level Periodic system (fixed-time-period) order placed for variable amount after fixed passage of time

Merchandising Operations Inventory Cost Flows Cost of goods sold $$$ Merchandise Inventory Purchases C/G/Sold

Flow of Costs through Manufacturing and Merchandising Companies

Inventory control is important for: Ensuring availability of inventory items Preventing excessive accumulation of inventory items The perpetual system maintains a continuous record of inventory changes The 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: Goods in transit (FOB Destination) Goods on consignment with consignee Goods, sold under buy back agreements Goods, sold with high rates of return 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, whereas Period 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: Specific identification Average cost First-in, first-out (FIFO) and Last-in, first-out (LIFO) Cost Flow Assumptions

Susieworld reports the following transactions for 2004: Date Purchases Purchase Cost May 12 100 units $1,000 Aug 14 200 units 2,200 Sep 18 120 units 1,800 420 units $5,000 On 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 Cost May 12 100 units $1,000 Aug 14 200 units $2,200 Sep 18 120 units $1,800 420 units $5,000 Steps: Calculate per unit average cost: $5,000/420 = $11.905 Apply this per unit average cost to units sold to get COGS: 400 x $11.905 = $4,762 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 Cost May 12 100 units @ $10 $1,000 Aug 14 200 units @ $11 $2,200 Sep 18 120 units @ $15 $1,800 420 $5,000 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 $4,700 20 * $15 = $300 Ending inventory $5,000 Cost of goods available

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 Cost May 12 100 units @ $10 $1,000 Aug 14 200 units @ $11 $2,200 Sep 18 120 units @ $15 $1,800 420 $5,000 Last-In, First-Out (LIFO) Method Cost of goods sold $4,800 20 * $10 = $200 Ending inventory $5,000 Cost of goods available

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.

LIFO METHOD LIFO , 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

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 LIFO The first 1700 units sold from the last batch cost $4.529 per unit The 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.

FIFO METHOD FIFO , 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.

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 FIFO The 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.

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.

Periodic Method of Inventory The 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

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.

Asset Acquisition A 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.

Maintain Assetsppt2t

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