Report on Inventory Valuation Methods: Woodside & Santos (ACCT101)

This report investigates the measurement of asset values in corporate reporting, specifically focusing on inventory valuation. It analyzes and compares previous and current inventory measurement systems, referencing AASB standards. The report uses Woodside and Santos as case studies, detailing their inventory valuation methods, including weighted average cost and net realizable value. It covers the application of these methods, the valuation of different types of inventory such as hydrocarbon stock and fuel materials and concludes with a summary of the key findings. The report is structured to provide a comprehensive overview of inventory valuation within the context of financial reporting, adhering to accounting standards and providing practical examples from listed companies.

Running head: REPORT 0
advanced corporate accounting
MAY 1, 2019
STUDENT DETAILS:

REPORT 1
Executive Summary
The valuation of inventory measures the value of the inventory of company, which is
currently in the inventory for reporting and financial objectives. The extracting company may
use more than one inventory valuation method to value the stock of the company. The
inventory valuation is a cost related to the inventories of corporation at an end of the
reporting period. The inventory valuation permits the entity to render the monetary value for
items, which make up inventories. This report states the current measurement method as well
as previous measurement method by taking the example of Woodside Company and Santos
Company. The valuation methods of inventory are useful in determining the value of
inventories.

REPORT 2
Contents
Introduction...........................................................................................................................3
1. Explanation of concept of measurement generally from perspective
of accountant....................................................................................................................3
1.1 Previous measurement systems.................................................................3
1.2 Current measurement systems...................................................................3
2. Examples of application.........................................................................................3
Conclusion..............................................................................................................................3
References.............................................................................................................................4
Appendices.............................................................................................................................5

REPORT 3
Introduction
To report the inventories in the financial statements of company, it is required that the
inventory should be determined in the monetary term. The inventories can be determined at
cost that the company has earned on purchasing or manufacturing or net realizable value
(NRV) that is simply company cantake on sellingof items (Kulikova, et. al, 2015). In the
following parts, the previous inventory measurement systems and current inventory
measurement systems are analysed and compared. This report also states the examples of
application on Santos and Woodside.
1. Explanation of concept of measurement generally from perspective
of accountant
1.1 Previous measurement systems
AASB 1019 as well as AASB 1022 explains the previous inventory measurement systems.
AASB 1022 states that the inventories must be taken into consideration at primary level at
which materials stating, or anticipated to be changed by further processing to, commercial
productsmay be assessed with consistency and the measures of these materials may be
assessed by physical size or consistent estimates. In the addition of this, it also addresses that
costs arising from development related to interest’s areamust be forward further to level that
the cost, along with the cost of exploration and assessment carried forward regarding the
interest area, are anticipated to be recovered by effective mistreatment of the interest area, or
otherwise, by the sale (Levy, 2018).

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AASB 1019 deals with the recognition of inventory as well as measurement of industry.
Under AASB 1019, the gross profit margin is not decreased for the periodic items or slow
moving items. In other words, the gross profit margin stays the similar as before. AASB 1019
does not include the commentary that states the accounting for good, which are not directly
relevant to the capacity of company to make profits and which are allocated for no any
consideration or insignificant consideration. It is also required under AASB that every
inventory should be assessed at the cost or the realisable value, which is lesser.
Following three factors are to be taken into consideration to determine normal operating
capacity-
a. Activity’s budgeted level regarding the present reporting period and for the
subsequent reporting period
b. The activity’s level attained in present reporting period as well as last reporting
periods
c. Manufacturing volumethat production facilities are planned by the designer as well as
administration to producein the working condition usually prevailing.
AASB 1019 also renders the informationregarding inclusion in formula to calculate NRV on
preliminary. It recognises the five principle situations where the NRV of inventories is
probable to be less than the inventory’s cost. Following are the situations-
a. Reduction in selling price
b. Undesirability of products
c. physical weakening of inventory
d. the decisions, according to marketing approach of company, to produce and sell
goods for period being at the losses
e. inaccuracies or the mistakes in manufacturing and buying

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AASB 1019 states that inventory write-downmay be reversedbut does not explicitly need
reversal of this write-down. Under AASB 1019, it is also required that inventory’s carrying
amount, which have assessed at NRV to be sub-categorised in a way relevant to functions of
corporation (Li, Bu and Wu, 2017).
1.2 Current measurement systems
As per the current inventory management system, the extracting industries use the weighted
average cost method for the purpose of inventories. The removal, assortment and collection
of liquid fuel, petrol and relevant materials makes this essential for those included in
production of products as well asselling of the products to utilise this method of valuation of
inventories. The incapability to distinguish one batch of fuel from other batch of fuel while
they are keptorganizedcreates weighted average costing the appropriateresolution to track the
inventories in proper way (Blaschak, et. al, 2015).
2. Examples of application
For the better understanding, the valuation method of inventory adopted by Santos and
Woodside can be considered. The annual report of Woodside states that the inventories of
company cover expendable materials, hydrocarbon stock, and conservation spares. This
company values the inventories at the lower of NRV and cost of inventory. The inventory’s
cost is valued as per the weighted average basis, which involves the direct cost as well as
proper parts of fixed manufacturing overheads and variable manufacturing overheads. The

REPORT 6
damaged inventories as well as outdated inventories are written down to NRV, being the
projected sale price excluding cost of sales (Joe, 2017).
Further, Santos considers the inventories that contribute to a business platform for producing
the revenue as well as profit (Annual Report, 2018a). The company values the inventories at
lower of cost and NRV. The net realisable value is considered as the selling price less the
projected completion cost as well as sale expenditures (Zhang, Wang and Jiang,
2017). It is stated by annual report of company that for the purpose of valuation of
inventories, the cost is assessed as-
a. Maintenance stock that involve plant spare, consumable materials and drilling devices
utilised for the continuing functions, are measured at weighted average method.
b. Fuel materials that contain mined crude oil, liquid petrol gas as well as pipeline
system, are measured according to the absorption costing system (GAS–Sustainable,
2015).
Conclusion
As per the above analysis, it can be concluded that that valuation measures the value of items,
which are currently in the inventory for the financial objectives. The corporation may need to
use various valuation methods for the valuation of stocks(Annual Report, 2018b).

REPORT 7
References
Annual Report (2018) Energy for Future. Available at:
https://www.santos.com/media/4651/2018-annual-report.pdf [Access on
01/05/2019]
Annual Report (2018)Woodside Annual Report. Available at:
https://files.woodside/docs/default-source/investor-documents/major-reports-(static-pdfs)/
annual-report-2018.pdf?sfvrsn=c9a46145_8[Access on 01/05/2019]
Blaschak, J.G., Blinov, A., Gits IV, J.A., Harfoush, F. and Myers, K., Social
Market Analytics Inc (2015) Systems and methods of detecting,
measuring, and extracting signatures of signals embedded in social media
data streams. U.S. Patent 9,104,734.
GAS–Sustainable, P.V. (2015) Gas Fuelled Progress. Oxford: Oxford University Press
Joe, S. (2017)An evaluation of the role of inventory management in enhancing business
performance in fast moving consumer goods (FMCG) retail supermarkets: The case of
Gutsai Convenience Stores. New York: Springer
Kulikova, L.I., Sokolov, A.Y., Ivanovskaya, A.V. and Akhmedzyanova, F.N.
(2015) Lowest value principle implementation in inventory measurement
of financial statements of the enterprises. Mediterranean Journal of Social
Sciences, 6(1 S3), p.406.

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Levy, H.B. (2018) 'Net Realizable Value'Is the New'Market': The Effects of
ASU 2015-11 and Other Inventory Valuation Issues. The CPA
Journal, 88(6), pp.64-65.
Li, J., Bu, H. and Wu, J. (2017) June. Sentiment-aware stock market
prediction: A deep learning method. In 2017 International Conference on
Service Systems and Service Management (pp. 1-6). IEEE.
Zhang, H., Wang, M. and Jiang, J. (2017) Investor protection and stock
crash risk. Pacific-Basin Finance Journal, 43, pp.256-266.

REPORT 9
Appendices
A. Woodside: https://files.woodside/docs/default-source/investor-documents/major-
reports-(static-pdfs)/annual-report-2018.pdf?sfvrsn=c9a46145_8
B. Santos: https://www.santos.com/media/4651/2018-annual-report.pdf

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