Step 7 Before going into the annual report and looking at my company inventories figures, I wanted to have some general knowledge about how we account the inventories, what methods can we use to keep the track of inventories. For that I read chapter the study guide and looked at the video provided on the assignment information. Reading and watching the videos were quite helpful for me. I got to understand that there are 2 different method to record the inventories transaction and they are

1.Perpetual – Records each purchase and sell in and out of inventories as it occurs. It helps firm to calculate their gross profit by subtracting their cost of goods sold from sales on a real time basis.

2.Periodic – Records the inventories periodically by physically counting each item of stock at

the end of the period. As it doesn’t record each transaction, it is impossible to calculate the cost of goods sold.

The inventories have to be valued in $ figures. Our market value for selling the product must be higher than the cost of inventories.

In order calculate the cost of inventories that has been sold and are still left to be sold there are 4 different cost formulation. They are

Specific identification: track each item by attaching actual cost to each item from purchase to sell. Applicable only if item is Not interchangeable

FIFO : Under this method, first item purchased are the first item sold to the customer.

LIFO : Under this method, last item purchased are the first item sold to the customer.

Weighted average: We calculate the weighted average of cost of each product individually.

After understanding the basic things about inventories, I went to my company annual report and looked for the inventory section in the annual report. For all three years my company has assigned their inventories cost to individual items on the basis of weighted average costs. Net realised value is calculated after deducting the estimated cost for the completion of the products and estimated cost necessary for selling the product.

As I continued exploring their note section, I was able to collect more detailed information about their inventory practice. They have classified their inventories into Raw materials, work in progress and finish goods. After calculating their cost of goods sold by including all of their their direct labour, materials and their variable+ fixed overhead expenditure, they have realised their raw materials, work in progress and finish goods at the lower cost and realised value.

After knowing their inventories policies, I checked their balance sheet. As my company manufacture that develops the medicines, I was not surprised to see the huge inventories level on my company. In 2016 and 2017 my company had more than 2 million inventories in their balance sheet. As they expected the sell to made within a year, they classified them

into the current assets section. Huge contribution to their inventories figure were the raw materials which, worth more than 1 million.

Surprisingly in 2018, they classified more than 2 million inventories under the non- current assets and only around 400K to current assets. I was surprised to see sudden change in their classification. Why would they suddenly put the inventories in the non-current assets? Was it because of the market demand or due to some internal causes? I found answers to all of my question again in their notes section. At 30 June 2018, while testing their product clinically, it was proven that the colostrum powder had a longer self-life and unlikely chances to be sold to an alternative market. So, after analysing the market and performing an assessment on their raw material about the forecasted inventory usages, sales and expiry dates of the products, company had classified them into current and non-current assets.

STEP 8

MYOB Online training and setup

Myob Login success

Miscellaneous setup success

Company file

Easy setup

Purchase setup

Sales setup

Online Trainning

Online training 2

Online Myob Test

Step 9

All journal reports

Step 10For completing the step 10 of the assignment I went to my company annual report’s note section and looked at the summary of accounting policies. I found couple of information related to my company’s depreciation policies in that particular section. My company has been using the same straight-line depreciation method to from 2016-2018 to allocate their cost, net of their residual values over their estimated useful lives which, are listed below.

Plant & Equipment (3-15 years)

Computer Equipment (2-4 years)

Furniture & Fittings (3-15 years)

In my opinion my company is a manufacturing company, according with the market demand my company will produce certain level of products yearly. Being in a painkillers industry the Demand for the product will remain almost at same level, so the benefits it will be receiving from its plant, machinery and equipment will be at the same level as well. So, following a straight line method which is formulated on a basis that benefits from non-current assets are expected to be same so the depreciation amount will be same, seems a perfect method for my company.

Through their notes I also got to know that they adjust their asset’s residual values and useful lives annually. When I went to the financial report i.e. income statement, instead of recording depreciation for different current assets they have calculated the lump sum and recorded it as depreciation on the expenses side. On the balance sheet they have not even mentioned depreciation anywhere. I was curious why they didn’t mention depreciation on their balance sheet. Afterword’s when I looked their depreciation figure it was merely 5047

dollars which contributed 0.1% in their total loss of 3,090,528 in 2018. So instead of categorising each asset’s depreciation amount separately, they simply calculated the total sum and subtracted from plant and equipment’s value and then recorded the remaining amount by naming Plant & equipment in balance sheet. As my company being a manufacturer company having only around $15,000-$ 20000 value for their entire value of plant and equipment $3000- or $4000-dollars depreciation could have big impact on plant & equipment itself but will not have much greater effect on the company expenses. Only if my company was having a loss of 5000 dollars and their depreciation expenses of $3000, it would have greater impact.

As my annual report have no information about the exact figure for each 3 items i.e. Plant and equipment, Computer equipment and Furniture & fittings. As their total depreciated figure in Annual report 2018 was 5047, I manually assigned some figures to each of them which will equal to amount $5047 in the end. My company’s 3 journal entries related to depreciation is presented below

General Journal

Date Particular DR amt ($)

Cr amt($)

30 June 2018

Depreciation expenses Accumulated Depreciation- plant and equipment(Depreciation expenses for the year)

2,0002,000

30 June 2018

Depreciation expenses Accumulated Depreciation- Computer equipment(Depreciation expenses for the year)

1,8001,800

30 June 2018

Depreciation expenses Accumulated Depreciation- Furniture & Fitting (Depreciation expenses for the year)

1,2461,246

Chances of Manipulation

Depreciation helps a company to deduct its taxable income which is why it is very likely that a company might manipulate their depreciation figure. While calculating the depreciation different assumption are made for example useful life of the assets and number of units used by the company to produce the good and services. As the final value of depreciation using either of the three method is completely based on the judgement of the company management, accordance with the outcome and the objective of a company they might use different values and methods. Similarly, company might also manipulate through the capitalisation of the improvement to an asset to improve their assets valuation rather than recording them as value destroying expenses depreciation.