Inventory

• Products held for sale : inventory - a current asset in the statement of financial position

  when the goods are sold, their cost related to inventory becomes an expense cost of sales

  this expense is deducted from net sales to determine gross profit
• inventory : assets part of SOFP

  COGS : sales part of IS
• COST OF SALES : opening inventory + purchases - closing inventory = COGS
• carrying amount : initial cost using FIFO or AVCO
• Net realisable value : the estimated selling price less any costs involved in selling and distributing the goods
• in inventory write downs we:

  DR COS / write down of inventory (increase)

  CR inventory
• inventory write downs occur due to

  obsolescence

  fashion

  seasonality

  imperfect quality
• in the income statement :

  the write off can be shown either as a separate expense —

  • if it is exceptional in nature or size

  Or

  • incorporated within the cost of sales
• The statement of financial position:

  deduct the write off from total inventory
• marathon PLC is a producer of sports goods

  the cost of inventory on 30 September 2011 was £1,100 included in this total is men’s sportswear costing £150 whose colour has faded it has been decided to sell these clothes at 30% of their cost.

  calculate the cost of sales COS

  beginning inventory: 1050

  purchases 6520

  COS = beginning inventory + purchases - closing inventory

  = 1050 + 6520 - (1100 -(0.7 x 150) = 995) = 6575