Digital Wine Ventures Ltd.: Inventory Costing and Financial Reporting

Desklib provides past papers and solved assignments. This essay analyzes inventory costing methods for Digital Wine Ventures.

Accounting Essay
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AASB or Australian Accounting Standards Board is a government agency which formulates the
accounting standards and every Australian company has to follow this framework (AASB,
2019). The company digital wine ventures should implement the AASB Conceptual Framework
while preparing its financial statements as it is an Australian Company and board has specifically
made this to assist IASB in development of IFRS and its review of existing IFRS. AASB
Conceptual Framework should also be implemented as it provides a similar conceptual
framework to all the Australian Company thus is advantageous to all the stakeholders of the
company and for better presentation of the company.
As Per AASB 102 Inventory in financial reporting the Inventory of digital wine ventures is
measured at cost or NRV whichever is lower (AASB, 2015). Cost of purchase of inventory
comprises of all cost of purchase, cost of conversion and other costs incurred for bringing the
inventory in the present condition. Whereas NRV is measured as the amount this can be realized
or recovered while selling the inventory. Also, Digital Wine Ventures should use LIFO Method
i.e. last in First out Method as the company gets the tax advantage and also tackles inflation by
selling the stock purchased last at first. It helps the company to defer the taxes on their gross
profit related to sales. Thus LIFO method is recommended for the company Digital Wine
Ventures.
The measurement of inventory is done at Cost or NRV whichever is lower as the NRV specifies
the realizable value of the inventory which actually can be recovered thus to show the proper
presentation of financial statements it is best to follow the approach also complying with the
conceptual framework and presentation of financial statements as per AASB 101 and AASB 102
Inventory.
Inventory System applied in the company Digital Wine Ventures is LIFO i.e. Last In First Out
Method in which the inventory which is wine in this company which is purchased at last or
inventory which is at last in sold first in the market. This Inventory system can successfully defer
taxes on their gross profit related to wine sales. Also, LIFO helps the company as inflation
continues to rise, which results in higher cost of goods which results in smaller tax liability as it
lowers the net income of the company. Also in case of wine company it minimizes the write-
downs to market as LIFO is less likely to be affected by a decline in price in future.
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Also, inventory is purchased at a higher price is sold first which reduces the chances of write
down in the market. As the management concern with the cost of the inventory company can
follow LIFO so that they can evaluate the inventory on the latest price so can they recognise the
actual value of the inventory which impact on the profitability of the company? As company sold
wine so their inventory is bifurcated in periodically according to the consumption so LIFO can
be a better option for management
Digital wine venture Ltd. is engaged in the distribution of wine in China. This company provide
the customer with an e-commerce platform from where they can give purchase the branded wine
for consumption. As the company is an e-commerce platform they need to be following a costing
method which provides effecting costing to the management and set a low price for the wine in
China. The company need to focus on purchasing of the vehicle so that they can minimize the
cost for the wine in logistics to the customer. Historical costing can be a method which Digital
wine venture used for the better and transparent presentations of the cost of logistics in the
financial statement.
Historical cost: Historical cost accounting technique defines as the recognition method of the
amount of the assets in the book of account. Historical cost accounting clearly defines that asset
is booked on the purchase value or original cost in the financial statement.
The reason behind choosing the historical cost method is that the company is an e-commerce
company which provide the wine to the world most populated country so they need to be a big
logistic network. They invested in huge amount for their logistic need so historical costing is a
better option which presents the actual and original costing of the logistics for the management
and stakeholder (Strouhal, 2015).
If the company choose different costing method so what can it impact on the presentations of the
cost of assets in the financial statement and influence the other information? When it comes to
historical cost it shows the actual and original value for the assets acquire and purchase instead
of the fair value in the market for that asset so Digital wine venture can get an effective financial
presentation on original presentations of investment in the assets.
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• Digital wine venture is using the method of fair value so that they define the cost of project
and operation on the fair market value which can be paid for that kind of activities.
• Fair value costing value the asset on the market value which fixed by the market dominator
factor that can also make any manipulation for the actual cost of the project for the company.
• Company if adopt fair value pricing method then they show the cost of the product on the fair
or actual reliable value which violent that company need to show the assets on which they
actually acquire so there will be margin in reliable value(fair Value ) or original cost which can
misinterpret the financial presentations of accounts and assets.
AASB Manage the fair presentations of the financial information of book of accounts so that
company need to make the books of accounts according to the AASB which can safeguard the
interest of stakeholder. The company need to be valued their stock and inventory on net reliable
value or cost which can be lower. As the company follow an adequate inventory system so that
the company present an actual framework for the stakeholder. The company need to be adequate
costing system so can they value minimum cost for the system and assets. The company can
maintain the costing for the adequate presentations of financial statement to the stakeholder.
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References
 AASB, 2015, AASB Standard , Inventories, [Online], AASB, Available at :
https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed on
05.02.2019]
 AASB, 2019, About the AASB, [Online], AASB, Available at : https://www.aasb.gov.au/About-
the-AASB.aspx [Accessed on 05.02.2019].
 Strouhal, J., 2015, Historical Costs or Fair Value in Accounting: Impact on Selected Financial
Ratios, Journal of Economics, Business and Management, Volume 3, No. 5.
 WSJ, 2019, Digital Wine Ventures Ltd.,[Online], WSJ, Available at :
https://quotes.wsj.com/AU/XASX/DW8 [Accessed on 05.02.2019]
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