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Retail Inventory Method

The document discusses the retail inventory method for estimating inventory value, providing the formula and approaches used including conservative, average cost, and FIFO. It lists the accounts and calculations involved like beginning inventory, purchases, markups, markdowns, and cost ratios.

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Laiza Mae Lasutan
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64 views1 page

Retail Inventory Method

The document discusses the retail inventory method for estimating inventory value, providing the formula and approaches used including conservative, average cost, and FIFO. It lists the accounts and calculations involved like beginning inventory, purchases, markups, markdowns, and cost ratios.

Uploaded by

Laiza Mae Lasutan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

FATHER SATURNINO URIOS UNIVERSITY

ACCOUNTANCY PROGRAM

RETAIL INVENTORY METHOD

Retail Inventory method is another method in estimating the value of the inventory. PAS 2, par
22, provides that this method is often used in the retail industry for measuring inventory of large number
of rapidly changing items with similar margin for which it I impracticable to use other costing method.

FORMULA:

Goods Available for Sale at RETAIL or SELLING PRICE xx


Net Sales (Gross sales minus sales returns only) xx
Ending inventory at SELLING PRICE xx
Multiply by: COST RATIO* xx
Ending Inventory at COST xx

* COST RATIO = Goods available for sale AT COST


Goods available for sale AT RETAIL
APPROACHES in the use of RETAIL METHOD

1. Conservative or Conventional or Lower of cost and Net Realizable Value Approach – This
approach only considers the net Mark-up ( Mark-up minus Mark-up Cancellation)

2. Average cost Approach – This approach considers Net Mark-up and Net Mark-down ( Mark
down minus Mark-down cancellation). This the approach often used by retail departments.
Therefore, if the problem is silent use this approach.

3. FIFO Approach – This approach both consider Net Mark-up and Net Mark-down in computing
cost ratio, but the beginning inventory is excluded in the computation of the cost ratio ONLY.

Cost Retail
Beginning Inventory xx xx
Purchases xx xx
Purchase discounts (xx) -
Purchase returns (xx) (xx)
Purchase allowances (xx) -
Freight In xx -
Departmental transfer in or debit xx xx
Departmental transfer out or credit (xx) (xx)
Additional Mark-up - xx
Mark-up Cancellation - (xx)
Goods Available for Sale – Conservative xx / xx = Cost ratio - conservative
Mark down - (xx)
Mark down cancellation - xx
Goods Available for Sale – Average xx / xx = Cost Ratio Average
Normal shortage, shrinkage, spoilage,breakage - (xx)
Abnormal shortage, shrinkage, spoilage,breakage (xx) (xx)
GAS xx xx
Sales xx
Sales Return (only sales return) (xx)
Employee Discounts xx (xx)
Ending Inventory AT RETAIL xx
Multiply cost ratio: xx
ENDING INVENTORY at COST xx

For the illustration kindly refer to the book.

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