A Report on JB Hi-Fi's Inventory Accounting Practices and Disclosures

This report provides an overview of JB Hi-Fi's inventory management practices based on disclosures in their 2017 annual report. The analysis reveals that JB Hi-Fi uses the weighted average cost basis and a perpetual inventory system for valuing its inventory. The report evaluates the impact of these cost assumptions on the income statement and balance sheet, noting a significant increase in inventory value from 2016 to 2017. Additionally, it discusses factors that accountants should consider when selecting an accounting policy for inventory valuation, including historical cost and market value considerations under IFRS. The report concludes by recommending a detailed chart of inventory valuation methods and emphasizing the importance of considering relevant factors for accurate financial reporting.

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Inventory Disclosures by JB Hifi

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Executive Summary
This report provides a brief overview on how JB Hifi maintains its inventory in books of
accounts. It has been done through evaluating the disclosures made by JB Hifi in annual report of
year 2017. It has been found that JB Hifi uses weighted average cost basis and perpetual
inventory system to value the inventory.

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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Analysis of disclosures made for the inventory by the JB Hifi.......................................................4
Factors to be Considered by the Accountants in Selection of Accounting Policy for Inventory....5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Introduction
The purpose of the present report is to evaluate the disclosure policies of JB Hifi
Company in relation to the Inventory. JB Hifi Company is listed on Australian Stock Exchange
and falls under ASX 200. JB Hifi has provided sufficient disclosures related to the inventory
possessed by it. This report has also discussed the factors that accountant must consider at the
time of selecting the accounting policies related to the inventory. Annual report of year 2017 has
been taken to make above mentioned analysis.
Analysis of disclosures made for the inventory by the JB Hifi
 Inventory System: There are mainly two system used to track the inventory and record
the same. These systems are perpetual and periodic inventory. Under perpetual inventory
system any change or modification in inventory value, count etc are recorded at the same
time when any transaction takes place while in case of periodic inventory system the
record of inventory are updated at regular period say quarterly or at annually (Arnold,
2013). On the basis of disclosures made by the JB Hifi in their annual report company
applies perpetual inventory system to maintain the records of inventory. JB Hifi has fully
automated computerized system that requires entries of initial data and rest procedure is
completed by the system itself. As JB Hifi is retail entity that sells its goods online as
well as offline through stores. So it important that company should maintain the
inventory on perpetual basis (Annual Report, 2017).
 Cost Assumptions: There are three costs basis through which inventory can be recorded
in the books of accounts. These are first in first out method, last in first out method and
weighted average method. Under first in first out (FIFO) method inventory that inventory
that is purchased first must be marked as sold firstly and so on. Whereas, in last in first
out (LIFO) method inventory that is entered lastly in books of account will be marked as
sale first and so on (Deegan, 2013). In weighted average basis inventory cost is kept as on
average basis and in cost of goods sold average value is taken irrespective actual cost of
goods. JB Hifi records the inventory value at weighted average cost basis (Annual
Report, 2017).
Please check the below:

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(Source: Annual Report)
 Impact of cost assumption on income statement: Under weighted average method to
measure the cost of inventory, the value of inventory recorded in hand represents a value
somewhere between oldest and newest units purchased (Brigham and Michael, 2013).
Similarly the value of cost of goods sold will reflect the cost in between the oldest and
newest unit that is being sold during the period (Annual Report, 2017).
 Evaluation of inventory: JB HiFi mainly maintains finished goods as their inventory and
they are measured as lower the cost and net realizable value. As per the disclosures
provided in notes to accounts of JB Hifi it can be said that cost of inventories are
determined after deducting the rebates and any type of discounts such as trade or actual.
The management judgments are used to determine the net realizable value as they are
based on key assumptions (Annual Report, 2017). The value of inventory report by the
JB Hifi in this annual report of year is equal to $859.9 million in year 2017 and $546.4
million in year 2016. This shows a increase of increase of 57% in inventory value in year
2017 as compared to year 2016.
Particulars 2017 2016
Inventory $859.9 million $546.4 million
Cost of goods sold $ 4397.5 million $3089.1 million
Factors to be Considered by the Accountants in Selection of Accounting Policy for
Inventory
The value of inventory reported in the balance sheet by the accountants is dependent on
its original value that can be measured by the use of historical cost or market value under the

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IFRS. Historical cost can be regarded as the initial direct and indirect costs that are incurred for
acquisition of a particular stock. On the other hand, the market value for reporting an inventory is
considered as the current replacement cost that would be incurred by the company for replacing
it. The market value of an inventory tends to change with time due to the damage caused and its
replacement. As such, the company is required to report its value on the balance sheet by
considering all the change that has occurred in its value over the reporting period (Epstein and
Jermakowicz, 2008). Jb Hi-Fi is an ASX listed entity and as such comply with IFRS standard for
valuation of the inventory.
Conclusion
It can be concluded from this report that JB Hifi has provided sufficient disclosures in
regards to inventory and it is suggested to the company to make a proper chart on how inventory
has been valued in books of accounts. It has been found out from the overall analysis that the
company is adopting the use of weighted average cost basis and perpetual inventory system to
value the inventory. In addition to this, it is recommended to the accountants to consider all the
relevant factors that can impact on the valuation of an inventory during the financial reporting
process. This includes assessing the inventory value both on the basis of historical cost and fair
value to accurately determine its value in the balance sheet.

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References
Annual Report. 2017. JB hifi. [Online]. Available at:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on: 6 October,
2018].
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage
Learning.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Epstein,B.J. and Jermakowicz, E.K. 2008. Wiley IFRS 2008: Interpretation and Application of
International Accounting and Financial Reporting Standards 2008. John Wiley & Sons.