This document summarizes key points about inventories from an accounting fundamentals chapter. It defines inventories as assets held for sale, in production, or as supplies. The cost of inventories includes purchase costs, conversion costs, and other costs to bring them to their present state. Cost of goods sold, gross profit, and net profit calculations are also outlined. Closing stock is generally valued at the lower of cost or market value, except for mining companies who use net realizable value.

1. CPTSuccess Revision Notes – Fundamentals of Accounting Chapter 4. Inventories

2. Chapter 4. Inventories Inventories are assets: held for sale in the ordinary course 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. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost of Inventories - The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. © Revision Notes - Fundamentals of Accounting CPTSuccess www.cptsuccess.com

4. Gross Profit = Sales – Cost of Goods Sold

5. Net profit = Gross Profit – Operating expenses

6. Net Sales = Gross Sales – Sales returns and allowances – Sales discounts© Revision Notes - Fundamentals of Accounting CPTSuccess www.cptsuccess.com

8. Interest and borrowing costs not included in Cost of inventories

9. Valued at “Cost or Market Value” whichever is lower except mining companies valuing closing stocks at Net realizable value

10. Exclude following costs and treat as expenses:

11. Abnormal amount of wasted materials, labor or other production costs

12. Storage costs

13. Administrative overheads

14. Selling and distribution costs© Revision Notes - Fundamentals of Accounting CPTSuccess www.cptsuccess.com

16. Specific identification

17. Average Cost

18. FIFO (First in, First Out)

19. LIFO not allowed as per AS 2.© Revision Notes - Fundamentals of Accounting CPTSuccess www.cptsuccess.com

20. CPTSuccess