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CHAPTER 2
RECORDING TRANSACTIONS AND EVENTS

CONTENT

2.1 Inventory

2.2 Tangible non-current assets

2.3 Accruals and prepayments

2.4 Irrecoverable debts and allowances

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2.1 INVENTORY (IAS 02)

Inventory
Cost of sales
Raw materials
Work in progress
Finished goods
First in First out (FIFO)
Average cost (AVCO)
Continuous method
Periodic method
Closing inventory
Opening inventory
Good received note
Good dispatched note
Carriage Inwards
Carriage Outwards

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OVERVIEW

Inventory

Valuation Adjustment

Net
Cost realisable
Opening Closing
value
(NRV)

Definition:

According to IAS02, Inventories are assets:

• Held for sale in the ordinary course of

business

• In the process of production for sale

• In the form of materials or supplies to be

consumed in the production process or in
the rendering of services

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Examples:
► Goods purchased and held for resale

► Finished goods produced

► Work in progress (WIP) being produced

► Materials and supplies awaiting use in the

production process (raw materials)

Carriage: Refers to the cost of transporting

purchased goods from the supplier to the premises
of the business

Carriage inwards Carriage outwards

Added to the cost Charged to selling

of purchases and distribution
expenses in the
income statement

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Inventory Records

Two methods

Continuous Periodic Inventory

Inventory System System

Calculation cost of inventory

Two methods

First in first out Average Cost

(FIFO) (AVCO)

Periodic Continuous
average costing average costing

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Measurement
Lower of cost and Net realizable value (NRV)
Other
Purchase Import Trade
Purchase directly
price duties discounts
cost attributable
cost

Cost of Costs directly related to Fixed and variable

Cost
conversion the units of production production overheads

Inventory
measurement Other cost bringing the inventories to their
present location and condition

Net realisable value

Format
$
Opening inventory value x
Add cost of purchases (or, in the case of a x
manufacturing company, the cost of production)
x
Less closing inventory value (x)
Cost of goods sold x

Cost of goods sold = Opening inventory + Purchases – Purchases returned –

Closing inventory

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Revision
QUESTION 1 A firm has the following transactions with its product R.

1 January 20X1 Opening inventory: nil

1 February 20X1 Buys 20 units at $200 per unit
11 February 20X1 Buys 22 units at $150 per unit
1 April 20X1 Sells 18 units at $300 per unit
1 August 20X1 Buys 16 units at $100 per unit
1 December 20X1 Sells 22 units at $300 per unit

The firm uses FIFO to value its inventory. What is the inventory value at the end of the year?
A. $Nil B. $2,200 C. $1,900 D. $1,807.2

Revision
QUESTION 2 The financial year of Mitex Co ended on 31 December 20X1. An inventory count on
January 4 20X2 gave a total inventory value of $527,300. The following transactions occurred
between January 1 and January 4.
$
Purchases of goods 7,900
Sales of goods (gross profit margin 40% on sales) 15,000
Goods returned to a supplier 800
What inventory value should be included in Mitex Co’s financial statements at 31 December 20X1?
A. $525,400 B. $527,600 C. $529,200 D. $535,200

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Hướng dẫn dạng bài 2:

Gross profit = sales – cost of goods sold

Mark-up is the profit as a percentage of cost (bài 4 trang 18)

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
( x 100%)
𝐶𝑜𝑠𝑡

Gross profit margin is the profit as a percentage of sales

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
( x 100%)
𝑆𝑎𝑙𝑒𝑠
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Revision
QUESTION 3 The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700. The
following items were included at cost in the total:
1. 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in manufacture,
they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of
the proceeds.
2. 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in February
20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above items?
A. $281,200 B. $282,800 C. $329,200 D. None of these

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TÓM TẮT CÁC DẠNG BÀI TẬP

INVENTORIES

Dạng 1: NRV Bài 5,6,9

Dạng 2: FIFO, AVCO Bài 7, 11, 13, 14, 15
Dạng 3: Tính ngược (gross Bài 1, 3, 10
profit margin)
Dạng 4: Trắc nghiệm lý thuyết Còn lại

2.2 TANGIBLE NON- CURRENT ASSETS

(IAS 16)

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Tangible non- current assets

Capital expenditure
Revenue expenditure
Cost
Depreciation
Disposals
Residual value
Accumulated depreciation
Straight line method
The reducing balance method
Fair value
Carrying amount
Useful life
Initial Measurement
Overhead costs

Overview

Non- current
assets

Use within
Purchase Disposal
business

Depreciation

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Distinguish between
current assets and non- current assets

Non-current assets Current assets

- Consumed in normal
Intended to be used operating cycle
on a continuing basis - or sold, held
primarily for trading

E.x: Tangible, E.x: receivables,

intangible assets inventories

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Revenue expenditure

► Trade of the business

► Maintain the existing earning
capacity of non-current assets
► Expense in the Income statement

Capital expenditure

► Acquisitionof non-current assets

► Improvements to existing non-
current assets
► Recognition of a non-current asset in
the statement of financial position

Capital Income

The proceeds from the sale of non-

trading assets (including long-term
investments).

Revenue Income
Income derived from the following
sources.
► (a) The sale of trading assets, such as
goods held in inventory
► (b) The provision of services
► (c) Interest and dividends received from
investments held by the business

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State whether each of the following items should be

QUESTION classified as capital or revenue expenditure or income for
the purpose of preparing the statement of profit or loss and
1 the statement of financial position of the business

A. The purchase of a property

B. The annual depreciation of such a property
C. Solicitors’ fee in connection with the purchase of such a property
D. The cost of adding extra storage capacity to a computer used by the
business
E. Computer repairs and maintenance costs
F. Profit on the sale of an office building
G. The wages of the machine operators

IAS 16 - Properties, plant and equipment

No. Concepts Definition

1 Property, Tangible assets that:
plant and ► Are held by an entity for use in the production or
equipment supply of goods or services, for rental to others, or
for administrative purposes
► Are expected to be used during more than one
period
2 Cost the amount of cash or cash equivalents paid or the fair
value of the other consideration given to acquire an
asset at the time of its acquisition or construction

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IAS 16 - Properties, plant and equipment

No. Concepts Definition

3 Fair value the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction
between market participants at the measurement
date
4 Carrying the amount at which an asset is recognised after
amount deducting any accumulated depreciation and
impairment losses

Measurement & Recognition

Recognition
► Probable that future economic benefits associated with the asset
► Cost of the asset to the entity can be measured reliably
► Period over 12 months

Initial
measurement
Purchase price excluding any trade
discount and sales tax

COST costs of dismantling and

removing, restoring the site Costs of testing after
deducting the net proceeds
from selling samples
Directly attributable costs of
bringing the asset to working Professional fees (lawyers,
condition architects, engineers)
Installation and assembly
costs

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Depreciation
- Depreciation is: the systematic allocation of the depreciable amount of
an asset over its useful life.

- Depreciable amount= the cost of a non-current asset, less its

estimated residual value

- Depreciation is both of the following:

► Charged against profit (PL);
► Deducted from the value of the non-current asset in the statement of
financial position.

Dr Depreciation expense
Double entry
Cr Accumulated depreciation

Depreciation
methods

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Depreciation methods

Reducing
balance Depreciation charge = X % × carrying amount
method

Carrying amount= Cost- accumulated depreciation

Dev, a trader, purchased an item of plant for $1.000 on 1

August 20X1 which he depreciates on the reducing balance at
20% pa.
What is the depreciation charge for each of the first five years
if the accouting year end is 31 July?

QUESTION
2

SOLUTION

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Depreciation methods

Straight- line Depreciation charge = (Cost- residual

method value)/useful life

Residual value: the estimated disposal value of the

asset at the end of its useful life

Disposal of non-current assets

Profit or loss on disposal

Proceeds > Carrying amount at disposal date = profit

Proceeds < Carrying amount at disposal date = loss
Proceeds = Carrying amount at disposal date

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Disposal of non-current assets

Record the
proceeds
Dr Cash account
Remove acccumulated
depreciation Cr Disposals
account
Remove the cost of Dr Acccumulated
non-current asset depreciation account
Dr Disposal account Cr Disposals account
Cr Non-current
asset Cost account

2.3 ACCRUALS AND PREPAYMENTS

Accruals
Prepayments
Liability
Payable
Prepaid income
In advance
In arrear

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Overview

Accruals concept

Expenditure Income

Accrued Prepaid Prepaid

Accruals

Accruals are expenses which relate

to an accounting period but have not
been paid for.
Shown in the statement of financial
position as a liability. Enter any accruals
DR Expenses
Accruals are included in payables in
CR Accruals
current liabilities
They represent liabilities which have
been incurred but for which no invoice
has yet been received

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Prepayments

Prepayments are expenses which have

already been paid but relate to a future
accounting period.
Shown in the statement of financial Enter any
position as an asset. prepayments

DR Assets
Prepayments are included in receivables
in current assets in the statement of CR Expenses
financial position.
They are assets, as they represent money
that has been paid out in advance of the
expense being incurred.

Chi phí trả trước là 1 số khoản chi phí của năm sau nhưng được
thanh toán trong năm hiện tại

Ví dụ: chi phí bảo hiểm tổng thanh toán trong năm là 30.000
trong đó có 6.000 trả trước cho năm sau

Bút toán 1 ghi: Nợ TK chi phí bảo hiểm, Có TK tiền 30.000

phần 6.000 đó xác định là chi phí trả trước, tương ứng phần tiền mình đã
trả

Bút toán 2 ghi: Nợ TK chi phí trả trước, Có TK chi phí bảo hiểm 6.000

(Giảm chi phí bảo hiểm của năm hiện tại, vì thực tế chưa phát sinh)

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Prepaid income

Prepaid income arises

where income has
been received in the Dr Income (P/L)
accounting period but Cr Prepaid income (S0FP)
which relates to the
next accounting period

Summary of the effects of accruals and prepayments

Effect on Effect on profit Effect on

income/expenses assets/liabilites

Accruals Increases expenses Reduces profit Increases liabilities

Prepayments Reduces expenses Increases profit Increases assets

Prepayments of Reduces income Reduces profit Increases liabilities

income

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2.4 IRRECOVERABLE DEBTS

AND ALLOWANCE

Irrecoverable debts
Allowance for receivables
Doubtful debts
Trade receivables

OVERVIEW

Trade
receivables

Irrecoverable Allowances
debts

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Irrecoverable
debts

An irrecoverable (or 'bad') debt is a

debt which is definitely not expected to be
paid.
An irrecoverable debt could occur when,
for example, a customer has gone
bankrupt.

They are written off as an expense

in the statement of profit or loss.

Writing off irrecoverable debts

DEBIT Irrecoverable debts expense (statement of profit or loss)
CREDIT Trade receivables (statement of financial position)

Subsequently paid
DEBIT Cash account (SOFP)
CREDIT Irrecoverable debts expense (SOPL)

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QUESTION
1

Allowances for receivables

Doubtful debts

► A doubtful debt is a debt which is SIMILAR

possibly irrecoverable. OR
► Doubtful debts may occur, for DIFFERENT
example, when an invoice is in
dispute, or when a customer is in ?
financial difficulty.

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Allowances for receivables

PRUDENT
PRECAUTION

► Allowance for receivables. An impairment amount in relation to

receivables that reduces the receivables asset to its recoverable amount
in the statement of financial position.

► It is offset against trade receivables, which are shown at the net amount.

Accounting treatment
► When an allowance is first made
DEBIT Irrecoverable debts expenses (SPL)
CREDIT Allowances for receivables (SFP)

Nợ phải thu

Thu được bằng tiền

(bút toán ?)

Không thể thu được-> Khách hàng thanh toán

xóa sổ nợ đã xóa sổ
? ?

Có thể không thu được->

lập dự phòng
?

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BCĐKT BC lãi/ lỗ
Tính số dư cuối kỳ phải thu Tính chi phí
khách hàng (irrecoverable dets expense)

= dự phòng cần lập THÊM(+)

= phải thu trong năm
hoặc hoàn nhập trong năm (-)
- tổng dự phòng phải thu
+ chi phí nợ không đòi được
- nợ không đòi được
- phần nhận được từ khoản đã
xóa sổ năm trước

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