Why are 'transportation of finished good to showroom' (minute 6.43) not capitalized ? it is said in the previous slide that only transportation from the showroom to the client are expenses ? Thank you
No, Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased and should be expensed. IFT support team
transportation of finished goods to showroom will only be capitalize if company is not selling to that showroom rather it is their own and goods are kept in showroom by company for selling to customers..
@@scottc5551 Agreed this seems contradictory. No explicit statement that its another company's showroom. From what's stated above, this seems like exact scenario provided on recent slide
Freight-in costs in FOB shipping point scenario should be capitalized and become a part of the cost of the goods purchased. When the good is sold, it increases the number of COGS.
transportation of finished goods to showroom will only be capitalize if company is not selling to that showroom rather it is their own and goods are kept in showroom by company for selling to customers..
I think there is an error @ 6:44 , Transportation of Finished good to showroom should be considered as "other costs necessary to bring the inventory to its present location and condition.", hence it should be capitalized.
I was confused too at first. But if we read carefully, its actually the transport of INVENTORY that's capitalized and not the transport of finished goods.
Shouldn’t Transportation of raw materials to showroom be capitalised as well, Since that comes under “Cost necessary to bring inventory to present location” ?
I think it shouldve just been made clear that the finished good is being transported to the customers show room and not the firms showroom where it will be sold to the customer but the exam is probably going to get us in this way as well
What does the presenter based on to classified 'Transportation of finished good to showroom' to be not capitalized (minute 6.43) and 'Transportation of finished good to showroom' (minute 4.08) to be capitalized ? As 2 statements contradict each other with the same ''Transportation of finished good to showroom' cost.
The value of inventory is based on the costs which are capitalized. These costs are raw materials, direct labor, transportation of raw materials and transportation of finished goods to showroom: $56,000 + $40,000 + $10,000 + $1,000 = $107,000. Abnormal wastage, storage of finished product, and transport of finished product to customer are expensed in the period incurred. Hope this is clear now. IFT Support Team
@@IFT-CFA According to your calculation in this reply, the calculation in the video is then wrong. Could you add this to the description of the video so that the matter is resolved? It has caused a great deal of confusion, as previous comments indicate. Great job on the videos!
In the falling prices and stable inventory example, and under LIFO, I understand EBT is high because with lower COGS expenses are lower. But why is EAT high when taxes are high?
The table compares LIFO with FIFO. Let's take some numbers to understand. Say 2 items are sold at 5 and there are no other transactions. Assume a tax rate of 30%. For LIFO EBT = 10 - 2 = 8. Tax = 2.4. EAT = 5.6. For FIFO EBT = 10 - 4 = 6. Tax = 1.8 EAT = 4.2. So for LIFO all three items, taxes, EBT and EAT are higher than LIFO. IFT Support Team
In the part of cost of inventories you said that bringing Raw material to showroom will be capitalised. But You marked it as expensed in the example question.
Hi Sir ! I don't speak english very well (French student). May you explain me the table in 15:00 You said: "Assume items were sold for $5". So i understood that we have 4 items, so prd 1 COGS = 2 items x 5$ = 10$ ? Please help
You can practice the example. Let us know the steps you are using for calculation so that we can guide you what are you missing in the calculation. IFT support team
Sir, Inventories Lecture 1 video - @6:50 min, there's an example where you saying to expense Transportation cost of Finished Goods to Showroom but in Capitalized Cost explanation you said that cost incurred to showroom should be capitalized ! So why then expensed? or is it an errorneously expensed??? Thanks
the cost of transporting finished goods from the production facility or entity’s main warehouses to retail points is added to the cost of inventory / capitalized as these costs are incurred ‘in bringing the inventories to their present location’ necessary to make the sale. On the other hand, transporting inventory between retail points to match the local demand, or transporting them from retail points to customer premises, is more likely to fall under selling activities and therefore should be expensed in P/L as incurred. IFT Support Team
Which method you are referring to? You can simply practice the same example by changing it to 2,2,1,1. Share your solution with us to review it. IFT Support Team
On page 12, 100 generators was the remainder from the first period and 25 generators from period 2. So when the remainder inventory cost is calculated, shouldn't they be multiplied by their original cost as 100(300) + 25(325). Is it because the latest market price was 325 or is there any rule about valuing the remaining inventory that im missing out on? Thankyou very much!
Hello Sir, Below is the question from Curriculum. As per your video Storage cost should be excluded. But in below question it was added in Inventory Cost. Can you please clarify this point as it sounds bit confusing to me. A company has operated at full capacity throughout the year, and a review of its inventory records for that period indicate that the following costs were incurred: Fixed production overhead $500,000
Direct material and direct labor $300,000 Storage costs incurred during production $25,000 Abnormal waste costs $30,000 The total capitalized costs to inventory during the year are closest to: $800,000. $855,000. $825,000.
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Why are 'transportation of finished good to showroom' (minute 6.43) not capitalized ? it is said in the previous slide that only transportation from the showroom to the client are expenses ? Thank you
No, Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased and should be expensed.
IFT support team
So when do we capitalize Transportation of finished good?
What scenarios?
transportation of finished goods to showroom will only be capitalize if company is not selling to that showroom rather it is their own and goods are kept in showroom by company for selling to customers..
@@aayushkumar7442 It is not clear in the presentation though. Sounded like it's the transportation of inventory to its "present location."
@@scottc5551 Agreed this seems contradictory. No explicit statement that its another company's showroom. From what's stated above, this seems like exact scenario provided on recent slide
Freight-in costs in FOB shipping point scenario should be capitalized and become a part of the cost of the goods purchased. When the good is sold, it increases the number of COGS.
Can you elaborate what do you want to ask?IFT support team
transportation of finished goods to showroom will only be capitalize if company is not selling to that showroom rather it is their own and goods are kept in showroom by company for selling to customers..
Transportation costs incurred to bring inventory to the business location can be capitalized in inventory.
IFT support team
I think there is an error @ 6:44 , Transportation of Finished good to showroom should be considered as "other costs necessary to bring the inventory to its present location and condition.", hence it should be capitalized.
Absolutely
I was confused too at first. But if we read carefully, its actually the transport of INVENTORY that's capitalized and not the transport of finished goods.
Professor, In the first example of this video, shouldn’t transportation of finished goods be expensed?
Wonderful summary! Thanks for the great efforts!
Thanks a lot.
IFT Support Team
Shouldn’t Transportation of raw materials to showroom be capitalised as well, Since that comes under “Cost necessary to bring inventory to present location” ?
I think it shouldve just been made clear that the finished good is being transported to the customers show room and not the firms showroom where it will be sold to the customer but the exam is probably going to get us in this way as well
Thanks for the feedback
IFT Support Team
What does the presenter based on to classified 'Transportation of finished good to showroom' to be not capitalized (minute 6.43) and 'Transportation of finished good to showroom' (minute 4.08) to be capitalized ? As 2 statements contradict each other with the same ''Transportation of finished good to showroom' cost.
The value of inventory is based on the costs which are capitalized. These costs are raw materials, direct labor, transportation of raw materials and transportation of finished goods to showroom: $56,000 + $40,000 + $10,000 + $1,000 = $107,000. Abnormal wastage, storage of finished product, and transport of finished product to customer are expensed in the period incurred.
Hope this is clear now.
IFT Support Team
@@IFT-CFA According to your calculation in this reply, the calculation in the video is then wrong. Could you add this to the description of the video so that the matter is resolved? It has caused a great deal of confusion, as previous comments indicate. Great job on the videos!
In the falling prices and stable inventory example, and under LIFO, I understand EBT is high because with lower COGS expenses are lower. But why is EAT high when taxes are high?
The table compares LIFO with FIFO. Let's take some numbers to understand. Say 2 items are sold at 5 and there are no other transactions. Assume a tax rate of 30%.
For LIFO EBT = 10 - 2 = 8. Tax = 2.4. EAT = 5.6.
For FIFO EBT = 10 - 4 = 6. Tax = 1.8 EAT = 4.2.
So for LIFO all three items, taxes, EBT and EAT are higher than LIFO.
IFT Support Team
@@IFT-CFA thank you for the clear explanation.
Best video for inventory
In the part of cost of inventories you said that bringing Raw material to showroom will be capitalised. But You marked it as expensed in the example question.
6:42 you said before that it has been capitalized on 4:08 . Can you please explain further?
How was the gross profit in prd q&2 calculated?
Hi Sir !
I don't speak english very well (French student).
May you explain me the table in 15:00
You said: "Assume items were sold for $5". So i understood that we have 4 items, so prd 1 COGS = 2 items x 5$ = 10$ ?
Please help
hello could you please explain you WACC once again , the calculation?
You can practice the example. Let us know the steps you are using for calculation so that we can guide you what are you missing in the calculation.
IFT support team
Sir, Inventories Lecture 1 video - @6:50 min, there's an example
where you saying to expense Transportation cost of Finished Goods to Showroom but in Capitalized Cost explanation you said that cost incurred to showroom should be capitalized ! So why then expensed? or is it an errorneously expensed???
Thanks
the cost of transporting finished goods from the production facility or entity’s main warehouses to retail points is added to the cost of inventory / capitalized as these costs are incurred ‘in bringing the inventories to their present location’ necessary to make the sale. On the other hand, transporting inventory between retail points to match the local demand, or transporting them from retail points to customer premises, is more likely to fall under selling activities and therefore should be expensed in P/L as incurred.
IFT Support Team
@@IFT-CFA Thankyou sir for clearing doubt! Appreciate revert and teaching!
what would happen in the case bof 2,2,1,1?
Which method you are referring to? You can simply practice the same example by changing it to 2,2,1,1. Share your solution with us to review it.
IFT Support Team
Great explanations , keep the good work coming
Thanks for your complimentary words.
IFT support team
On page 12,
100 generators was the remainder from the first period and 25 generators from period 2.
So when the remainder inventory cost is calculated, shouldn't they be multiplied by their original cost as 100(300) + 25(325).
Is it because the latest market price was 325 or is there any rule about valuing the remaining inventory that im missing out on? Thankyou very much!
same question?
I thought similar, but it would be 100(300) for the original stock, and then the later stock as 125(325) as 225 were purchased in total?
Hello Sir,
Below is the question from Curriculum. As per your video Storage cost should be excluded. But in below question it was added in Inventory Cost.
Can you please clarify this point as it sounds bit confusing to me.
A company has operated at full capacity throughout the year, and a review of its inventory records for that period indicate that the following costs were incurred:
Fixed production overhead $500,000
Direct material and direct labor $300,000
Storage costs incurred during production $25,000
Abnormal waste costs $30,000
The total capitalized costs to inventory during the year are closest to:
$800,000.
$855,000.
$825,000.
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