Inventory System Evaluation and Costing Methods in Business Accounting: A Case Study of Beacon Lighting Group Limited

The paper discusses the inventory system of Beacon Lighting Group Limited, evaluating its inventory according to the AASB 102 standard. The company uses the weighted average costing method and follows a perpetual inventory system. The method helps centralize inventory information and provides accurate daily evaluations. The choice of costing methods impacts the company's financial statements, with weighted average being the preferred method due to its average valuation of inventory.

BUSINESS ACCOUNTING

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Introduction
Business Accounting is the systematic way of recording, analysing and controlling the
financial information. There are different standards which help the company to record the
different information related to the financial situation of the company. Inventory accounting
standard is one of the accounting standards of the accounting. In this paper, the discussion is
made on the topic of inventory system of the company. Beacon lightning group limited has
been taken into consideration in order to evaluate the inventory system of the company.
Evaluation of Inventory
There are many methods of evaluating of the inventory and these are standard cost, LIFO,
FIFO and Average Cost. But as per the AASB 102, the inventory is evaluated at the lower
cost or net realisable value of the goods. The company also follow the same method to
evaluate the inventory in order to record in the financial statement (ASSB. Gov., 2015). The
company assigned the cost the individual items in order to evaluate the cost of the inventory.
Cost of inventories of the company includes the all types of cost such as cost of purchase,
cost of conversion and the other (Boundless Accounting, 2018).
(Beacon Lighting Group Limited, 2018)
As per the annual report of the company, the cost of the inventory is $79,402,493 and the net
realisable value is $94,537 in the year 2017. The company also include the provision of stock

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of obsolesce in the evaluation of inventory. The evaluation of the company reflects that the
company also follow the accounting standard 102 in order to evaluate the inventory.
Inventory System used by the company
There are two types of inventory system which can be used by the company and these are
periodic and perpetual inventory system. Beacon lighting group is an electronic company
which offers the lighting products in Germany, Hon Kong, United States and many others.
The company is a retailing company of lighting products which has many stores that is why it
is essential to evaluate the inventory of per day. Perpetual method is an appropriate method
for the company. The company applied the perpetual method in order to evaluate the
inventory system (Accounting Tools, 2018a).
Advantage
The method is beneficial for the company in order to evaluate an appropriate amount of
inventory. This method allows the company to centralise the inventory system so that they
have the information related to the asset. This method provides the accurate amount of the
inventory to the company in related to their inventories by evaluating the inventory on the
daily purpose.
Costing Methods
There are four costing methods that can be used by the company to evaluate the cost of
inventory. LIFO, Weighted Average, FIFO, and Specific identification are the four methods
that the company used to evaluate the cost of inventory.

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(Beacon Lighting Group Limited, 2018)
It has been seen that the company applied the weighted average method in order to evaluate
the accurate amount of inventory. The weighted average method helps to minimise the effect
of unusual high and low material prices. This method also helps to analyse the operating
result and the company also required to expand the business at the higher level. The company
is operating in the different country that is why it requires the effective method so that it can
analyse the operating value. It is an easy method for the company to apply in order to
evaluate the value of the inventory. It is also a reason that the company use this method to
evaluate the value of inventory (Play Accounting, 2018).
Impacts of costing methods
According to the above analysis, it has been seen that there are four types of costing method
but the company use the weighted average method. These methods have a negative and
positive impact on the financial statement of the company (Weygandt, Kimmel, and Kieso,
2015).
The company applied the weighted average cost method which is beneficial for the company
because in this method the value of stock is evaluated on the average basis. In this, the value
of closing inventory will affect as per the average value of inventory. But in the FIFO
method, the first inventory goes out first due to which the amount of last inventory is taken to
evaluate the inventory. The amount of last inventory affects the three things in the financial

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statement of the company and these are net profit, current asset and the value of equity from
the balance sheet. The amount of last inventory can be increases or decreases as per the
market situation (Accounting Tools, 2018b). If the amount of inventory is increase then the
company face the more expenses and the profit of the company will affected. The amount of
current asset is increases in the balance sheet. If the value of last inventory is decreases then
the company have a benefit because the company sell the product at the higher prices as per
the current value and earn the more profit. The value of net profit is fluctuated as per the
fluctuation in the prices of inventory. In the LIFO method, the procedure is opposite as per
the FIFO method. The profit, balance sheet is affected with the amount of last inventory.
It has been analysed that the weighted average method is a best method for the company
because in this method the evaluation of inventory is based on the average value of inventory.
Conclusion
From the above analysis, it has been seen that the company follows the accounting standard
102 to evaluate the value of inventory. The company evaluate the inventory on the basis of
lower cost and net realisable value of inventory. There are four method of costing such as
FIFO, LIFO and Weighted Average Method. The company applied the weighted average
method. Weighted Average Method is an appropriate method for the company which helps to
evaluate the cost per unit of the inventory.

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References
Play Accounting. (2018) Weighted average costing method. [online] Available from:
https://www.playaccounting.com/explanation/mcm-exp/weighted-average-costing-or-
moving-average-costing-method/ [Accessed 5/ 2/19].
Boundless Accounting. (2018) Valuing Inventory. [online] Available from:
https://courses.lumenlearning.com/boundless-accounting/chapter/valuing-inventory/
[Accessed 5/ 2/19].
ASSB. Gov. (2015) Inventories. [online] Available from:
https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 5/ 2/19].
Beacon Lighting Group Limited. (2018) Annual Report 2018. [online] Available from:
http://www.beaconlightinggroup.com.au/media/pdfwidget/BLX_FY2018_Annual_Report.pdf
[Accessed 5/ 2/19].
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting.
John Wiley & Sons.
Accounting Tools. (2018a) Perpetual Inventory System. [online] Available from:
https://www.accountingtools.com/articles/2017/5/13/perpetual-inventory-system [Accessed
5/ 2/19].
Accounting Tools. (2018b) First in First Out Method (FIFO). [online] Available from:
https://www.accountingtools.com/articles/2017/5/13/first-in-first-out-method-fifo[Accessed
5/ 2/19].

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