Reference no: EM131151210

Inventory Costing and Intangible Assets- ACCOUNTING ONLY

The average cost method seems to me the most accurate representation of business. It makes sense to me as the useful life of equipment does, equal cost over x time. I understand the use of First-in, First-out (FIFO), it seems very orderly and a good rotation of product regardless of wear and tear from storage (although I would still assume some depreciation). Last-in, First-out (LIFO) seems it would assume no wear and tear and no depreciation from storage, and I would think it would keep down labor costs that are associated with moving items around to get to the first-in products, in this scenario I assume that physical flow matches cost flow. The account angle to all seem pretty straightforward, assumptions are easily made for these methods as long as there is consistency. At first glance the Lower-of-Cost-or-Market appears to be an unnecessarily complicated way to do inventory. It seems that it is a requirement to identify methods of accounting used in financial reporting.

When reading the chapter, this was the first time I have heard Just-In-Time (JIT) or Activity-Based (ABC) Costing. JIT is pretty straightforward, as the name suggests, inventory is used to finish a particular project, just in time. ABC is an accurate way to assign overhead cost to manufacturing of items based on more than one activity. I found when looking up the definition of ABC that how interesting it actually is. The examples given were great to show the reasons for its use.

Tangible Assets are those that are physical and easily identifiable. Intangible Assets are those items such brand names. There is an obvious difference per definition, but both are important to a business, and both are depreciable. When PepsiCo makes acquisitions, the price of the purchase is broken down to assets and liabilities, which also include brands and are based on fair value, the remaining price of the purchase is considered good will. The intangible assets are estimates and assumptions based on evaluating certain categories. Some of the are: life cycles of the product, market share, consumer awareness, and brand history with future expansion expectations. Brands are considered to have an indefinite life, but those that don't meet a certain criteria, those brands are amortized over their expected useful lives. The useful life usually range from 5-40 years.

The purpose of depreciation is to spread the cost of a particular asset of multiple accounting periods.

Capital expenditures are those that cover more than one accounting period, whereas revenue expenditures cover the current period.

Pepsi Managerial Accounting report. (n.d.). Retrieved July 26, 2016, from https://www.scribd.com/doc/38593673/Pepsi-Managerial-Accounting-report

Williams, J. (2015). Financial & Managerial Accounting (17th ed.). New York City, NY: McGraw-Hill Education.

Activity Based Costing | Explanation | AccountingCoach. (n.d.). Retrieved July 26, 2016, from https://www.accountingcoach.com/activity-based-costing/explanation/1