Inventory

• Inventory refers to the goods bought by the business to sell to the customers
• Cost of purchase includes the purchase price of goods and all cost incurred to bring in the goods to get them ready for sale


  This includes:

  • Purchase price
  • Delivery fees
  • Import taxes / duties
  • GST
  • Insurance for goods
  • Packing materials for goods
  • Salary for workers to repack the goods

  This does not include:

  • Wages of office and sales worker
• FIFO method -> Goods that are purchased first or earliest are assumed to be sold first
• Ending inventory -> Is the inventory that remains unsold at the end of the financial period
• Sales revenue - Cost of sales = Gross profit
• Inventory are recorded as a current asset in the statement of financial position
• Basis of valuing inventory -> Inventory is valued on the basis of the lower of cost or net realizable value
• Net realizable value -> The selling price of inventory less the additional cost to sell the inventory
• Net realizable value = Selling price - additional cost to sell the inventory