Summary
Highlights
This video, part of 'Discussion 5 Inventories Part 2,' aims to teach how to compute ending inventory, cost of goods sold, and gross profit using specific identification, FIFO, weighted average, and moving average methods. It also emphasizes that LIFO is no longer permitted under IAS 2.
The specific identification method, as per IAS 2 paragraph 23, is used for inventory items that are not ordinarily interchangeable or are produced for specific projects. The video provides a detailed problem illustrating how to calculate cost of goods sold, gross profit, and ending inventory using this method by tracking specific batches of inventory.
The FIFO method (IAS 2, paragraph 25) assumes that the first items purchased or produced are the first ones sold. This means that the remaining inventory consists of the most recently purchased or produced items. The video presents an example using a stock card to demonstrate how to calculate cost of goods sold and ending inventory under FIFO, noting that results are the same whether using periodic or perpetual systems.
The weighted average method (IAS 2, paragraph 25) determines the cost of each item based on the average cost of similar items at the beginning of the period and purchases made during the period. The video explains how to calculate the average cost per unit by dividing the total cost of goods available for sale by the total number of units available. This average cost is then used for both ending inventory and cost of goods sold calculations.
The moving average method (IAS 2, paragraph 27) is a perpetual inventory system where a new weighted average cost is calculated after every purchase. This updated average cost is then used for subsequent sales. The video demonstrates how to continuously update the average cost and apply it to sales and remaining inventory, clarifying the procedural differences between weighted average and moving average.
The video concludes by briefly touching upon the advantages and disadvantages of each method, depending on market price fluctuations. It announces that the next lesson will cover the measurement of inventories at lower of cost and net realizable value (LCNRV).