Topics: Inventory, FIFO and LIFO accounting, Costs Pages: 5 (1554 words) Published: April 9, 2014
Identifying relevant Malaysian Financial Reporting Standard with Inventory Cycle Referring to have been stated above, the selected company was a small sized entity and therefore, the processes under its inventory cycle was not complex like those in retailers as well as manufacturers.

Figure 1.1 Inventory cycle with shaded area for activities related to MFRS Principally, the fundamental issue in accounting for inventories is to define the amount to be recognized as asset as well as amount to be charged as expenses in contrast to associated revenue. Therefore, FRS 102 Inventories provide guidelines in determining the cost of inventories, cost formulas used to assign costs of inventories, the amount recognized as expenses and write down to net realisable value. Inventories comprises those: Held for sale in the ordinary cost of business;

In the process of production for such sale; or
In the form of materials or supplies to be consumed in the production process or in the rendering of services (Lazar & Choo, 2008). Inventories also includes goods purchased and held for resale which encompasses buying merchandise by a retailer. Connecting to the selected business, the existence of the inventory of Waqec Stationary Sdn Bhd, are essentially buying the merchandise and held them for sale in the ordinary cost of business which is under the classification of inventories. As we can see from the figure 1.1 above, FRS 102 Inventory in this case mainly focuses on the shaded area, which are numerous accounting issues arise particularly in determining the costs of inventories, Net Realizable Value. Purchase Order Activity

When purchasing a certain commodity, Waqec Sdn Bhd will be issued invoices from various suppliers. It contains the receipt of a purchase order which is also the agreed amount of cost that will be borne by the buyer, which is the entity itself. Cost

According to FRS 102 Inventories, cost of inventory contains all costs incurred to carry the inventory to its present location and condition. This comprises all costs of purchase, conversion costs and all other costs. The cost of purchase incurred by Waqec Sdn Bhd was basically those costs attributable to the acquisition of finished goods (such as stationaries, papers, etc) and these consist of the purchase price, related taxes as well as transport costs. However, the transport costs was incurred only when Waqec’s supplier was unable to deliver the products in place. Moreover, Waqec does not incur specific costs that are excluded as inventory costs such as abnormal amounts of wastage or storage costs (once the stocks arrived, employees display them straight onto the shelves provided).

Selling Activity
Among the selling activities, there are several consideration in terms of acquired costs, selling price, selling costs as well as its way of disclosing the amount. Here, applying the FRS 102, arising the issue of how an entity measures the inventories. Measurement of inventories should be at lower of cost and net realisable value. Net Realizable Value

FRS 102 determines net realizable value as the ordinary course of business’s estimated selling price less estimated costs of completion and the estimated costs necessary to make the sale. In this case, the company essentially purchased a certain units of products from a certain supplier based on the preference of manager which usually favours lowest price from them. The pricing usually were charge at a standard retail price, which are recommended by the suppliers itself. Only then, the supplier will set the margin for the seller to sell. Let say, 30% margin. Therefore, when a product was purchased at RM 1 for each product, the seller will sell it at RM 1.30. However, some of the products do not have the recommended price and hence, the manager set it at market price or even lesser. Linking to the FRS 102, the company does not own the net realisable value. This is because, net realisable value should be...
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