Chap7InventoryAssets(财务报表分析,加州大学MBA)

1Inventory〔存货〕Inventorymeansastockofgoodsthatafirmownsandholdsforsale(finishedgoodsinventory成品存货)orforfurtherprocessing(rawmaterialinventory原始材料存货,andwork-in-processinventory在加工存货).Manufacturingorretailingfirmsgenerateprofitsfromsellingouttheirinventories.2Whatisimportantaboutaccountingforinventory?AgraphAllInventoryInventorySoldInventoryLeftinTheWarehouseI/SRevenue..COGS..…..B/SAssetsCash…A/R…Inventory………???3Inventorycostingandearnings–Wal-Mart4Howafirmacquireinventory?Manufacture:

GeneralMotorpurchasessteels(rawmaterialinventory);workersprocesssteelsandmanufacturecars(finishedgoodsinventory).Beforeacarisfinished,itisinwork-in-processinventory.Purchase: AcardealerpurchasesnewcarsfromGM,putthecarsinitsinventorybeforesellingthem.5Howamanufacturingfirmaccumulatescostsforitsfinishedgoodsinventory?6Ourfocushereisonpurchasedinventory.Theaccountingformanufacturedinventoryfollowsthesamerules.Inanygivenperiod,thefirmstartstheperiodwithsomeinventory(beginninginventory,BI),itthenpurchasesmoreinventoryduringtheperiod(newpurchases),andsellssomeinventory(sales).Thefirmendstheyearwithsomeinventory(endinginventory,EI).Thecosts(thetotalamountofmoneyusedtopurchase)ofsoldinventoryiscalledcostofgoodssold(COGS)7InventoryequationIntermsofnumberofunitsBeginninginventory+newpurchases–sales=EndinginventoryIntermsofdollaramountsBeginninginventory+newpurchases–COGS=EndinginventoryFrompriorperiodBalancesheetTocurrentPeriodIncomestatementTocurrentPeriodBalancesheet8TimingofComputationofCOGSPeriodicInventorySystemApurchaseDr.InventoryCr.CashAsaleDr.A/RCr.RevenueAsaleDr.A/RCr.RevenueAtendofperiod:Dr.COGSCr.InventoryHowtodecideCOGSandEIatendofperiod:1)countinventoryintheWarehousetogetEI;2)BI+Purchase(known)–EI(countedandcosted)=Goodsavailableforsales-EI=COGSBIEI9TimingofComputationofCOGS-2PerpetualinventorysystemBIEIApurchaseDr.InventoryCr.CashAsaleDr.A/RCr.RevenueDr.COGSCr.InventoryAsaleDr.A/RCr.RevenueDr.COGSCr.InventoryHowtodecideCOGSandEI:1)addCOGSinallsalesjournalEntriestogetCOGS;2)BI+Purchases(known)–COGS=Goodsavailableforsale–COGS=EI10ComparisonsofthetwosystemPeriodicsystemPerpetualsystemMaketheCOGS/InventoryjournalentryonceayearMaketheCOGS/InventoryjournalentryeverytimeasaleismadeHavetophysicallycountinventoryatendofperiodtogetEI,thencomputeCOGSDoesnothavetodophysicalcountofinventory,getCOGSdirectlyandthencomputeEIAllshrinkage(theft,loss,etc.)goesintoCOGS.Cannottellwhetherapieceofinventorywasactuallysoldorstolen.IfEIisdifferentfromaphysicalcount,thedifferenceisduetotheftandwaste,thendo:Dr.LossfrominventoryshrinkageCr.InventoryGoodforlargevolume,lowvaluegoods,suchasgroceries.Goodforsmallvolume,highvaluegoods,suchascars.11Inventorycostingmethods

(*fromnowon,wefocusonperiodicinventorysystem)Themaindifficultyincostinginventoryisthatthesameproductsininventorypurchasedatdifferenttimecostdifferently.BI:10units@$51stP:8units@$62ndP:15units@$73rdP:15units@$8FourLayersOfInventoryAtyear-end,thefirmCountedinventoryandfound16unitsinEI,thenfirmassumeditsold32unitsofInventory,howmuchshouldEIandCOGSbe???Remember:TheproductsAreidenticalAndnopriceTagonthem12Inventorycostingmethods-GoodsavailableforsaleFromBI:10units*$5=$50From1stpurchase8units*$6=$48From2ndpurchase15units*$7=$105From3rdpurchase15units*$8=$120Unitsavailableforsale:48unitsGoodsavailableforsales:$32313Inventorycostingmethod:FIFO,first-in,first-outIntheexample,firsttheBIissold,10unitsThenthe1stpurchaseissold,8unitsThen14unitsfromthe2ndpurchasearesold,14unitsThenEIincludes:1unitfrom2ndpurchase1unit*$7=$7And15unitsfrom3rdpurchase15units*$8=$120TotalEI:16UnitsTotalEIindollar:$7+120=$127COGS=Goodsavailableforsale-EI$323–127=$19614Inventorycostingmethod:LIFO,Last-in,first-outIntheexample,firstthe3rdpurchaseissold,15unitsThenthe2ndpurchaseissold,15unitsThen2unitsfromthe1stpurchasearesold,2unitsThenEIincludes:6unitfrom1stpurchase6unit*$6=$36And10unitsfromBI10units*$5=$50TotalEI:16UnitsTotalEIindollar:$36+50=$86COGS=Goodsavailableforsale-EI$323–86=$23715Inventorycostingmethod:Weightedaverage16ComparisonsofEIandCOGSunderthethreemethodsWhichmethodyouchooseifyouwantto1)havehigherNetincome,or2)paylesstax?17Inventorycostingmethod:theimpactonincomestatement18Inventorycostingmethod:discussioninarisingcostlevelenvironmentFIFOLIFOEIcontainsrecentlypurchasedinventory,soEIcost(high)isclosetocurrentmarketpriceforInventory.EIcontainsoldinventory,soEIcost(low)isnotrepresentativeofcurrentmarketpriceforinventoryCOGScontainsold,low-pricedinventory,solowCOGS,highNetIncome,highincometax.COGScontainsnew,high-pricedinventory,sohighCOGS,lowNetIncome,lowincometax.Whathappensinadecliningcostlevelenvironment?BalancesheetWithcurrentdataIncomeStatementWitholddataBalancesheetWitholddataIncomeStatementWithcurrentdata19FIFOorLIFO,thatisthequestion?Giventhatthegeneralinventorypricelevelhasbeenincreasingoverthelastcentury,whynotallfirmsareusingLIFOtosavetax? InternalRevenueServicehasa“LIFOconfirmityrule〞,acompanyusingLIFO/FIFOforfinancialreportingpurposemustalsousethesamemethodfortaxreportingpurpose.Therefore,acompanymusttradeoffbetweenhighincome/hightaxandlowtax/lowincome.20FIFOorLIFO,thatisthequestion?LIFOhasbeenallowedsince1939intheU.S.,butthevastmajorityofcompaniescontinuetouseFIFO.Byanestimate,between1973and1975,106FIFOcompanies,relativetomatchedLIFOcompanies,eachpaidnearly$26millioninadditionalincometax.Themoneycouldhavebeenusedtoexpandbusinessorreturntoshareholders.21FIFOorLIFO,thatisthequestion?WhycompaniesstickwithFIFOdespitethecashflowadvantageofLIFO? 1)Managementpreferhighnetincomeoverlowincometax(iftheirbonusistiedtonetincome,iftheyaretoexercisetheirstockoptions,etc.) 2)Forsomecompanies,LIFOandFIFOdonotmakemuchdifference(ifpriceofinventoryisstable,ifinventoryturnsoververyquickly,etc.)

22EarningsmanagementthroughchoiceofinventorycostingmethodVerydifficultCompaniescannotswitchbetweenLIFOandFIFOateasedependingonthepricelevelofinventoryOncetheychooseonemethod,theyhavetosticktoit.23LIFOinventorylayerdippingInarisinginventorycostenvironmentIfEIquantityislowerthanBIquantity,thenwesaythecompanydippedintooldlayers;Withinayear,ifunitsofinventorysoldincludeunitsfromearly-of-the-yearlow-pricedpurchases,wealsosaythecompanydippedintooldlayers(ourexample)24LIFOinventorylayerdippingInventorydippingcausesthefirmtouseolder,lower-pricedinventoryindeterminingCOGS,whichleadstolowerCOGS,higherNetIncomeandhighertaxthanifthefirmhasbeenabletomaintaintheinventorylevel,againstthespiritofLIFOmethod.25EarningsmanagementthroughlayerdippingNow,whatHappensiftheCompanydoesNotmakethe3rdpurchase?26Inventorycostingmethod:LIFO,Last-in,first-outFirstthe2ndpurchaseissold,15unitsThenthe1stpurchasearesold,8unitsThen9unitsfromtheBIaresold9unitsThenEIincludes:1unitfromBI1unit*$6=$6TotalEI:1UnitsTotalEIindollar:$6COGS=Goodsavailableforsale-EI$213–6=$20527Earningsmanagementthroughlayerdipping28IncomparabilitybetweenfinancialstatementspreparedunderLIFOandunderFIFODuetothedifferentin