Cost of Sales & Inventories Mark Fielding-Pritchard mefielding.com1.

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Presentation transcript:

Cost of Sales & Inventories Mark Fielding-Pritchard mefielding.com1

Cost of Sales  Matching principle  If we sell 1000 apples, what is the cost of 1000 apples  See 1.1 & 1.3 Pages 179, 180  Op Inventory + Purchases – Cl Inventory  We also include carriage in  Inventory write offs also go in CofS (1.4, P182) mefielding.com2

Cost of Sales  Interactive Q2 P183  Dr Expenses Cr Purchases  Dr Receivables Cr Other Income mefielding.com3

IAS2 Inventory  Interactive Q2 P183  Dr Expenses Cr Purchases  Dr Receivables Cr Other Income mefielding.com4

IAS2 Inventory p186 mefielding.com5 DrCr 0Inventory2000Capital2000 1Purchases4300Payables4300 2Payables3600Cash3600 3Receivables8000Sales8000 4Cash3200Receivables3200 6Expenses900Cash900 7Inventory (SOFP)1800Inventory (IS)1800

IAS2 Inventory  Value at lower of cost, including all costs or NRV, net income from selling after all ancillary costs such as rectification, modification, commissions and non recoverable taxes mefielding.com6 ABC Cost20914 NRV23812 Lower20812 Value Total8800

IAS2 Inventory  In manufacturing company inventory will consist of direct material, direct labour & direct overhead- conversion costs  Raw materials, WIP & finished goods mefielding.com7

IAS2 Inventory FIFO mefielding.com8 Receipt Issue CostRemainder 1 May May May May May May May May

IAS2 Inventory AVCO mefielding.com9 Receipt IssueCostAv Unit CostRemainder 1 May May May May300636( )/600 = May May100240[(200x2.10)+240] /300= May May200220

Mark up & Gross Margin Mark Up  Cost Plus basis  If mark up = 30% & cost is £100  Sales price will be 130 Gross Margin  % of sales price  If gross profit is 30% & cost is 140  Selling price is $200 mefielding.com10