AASB 102 Compliance and Inventory Valuation at LINFOX TRANSPORT

This report provides an analysis of Linfox Transport's inventory valuation practices, focusing on its compliance with AASB 102. The report evaluates the measurement of inventory, highlighting the company's adherence to the lower of cost or net realizable value principle. It identifies the perpetual inventory system used by Linfox Transport and discusses the advantages of this system for managing a large retail inventory. The report also determines that Linfox Transport uses the weighted average costing method, explaining the reasons for its preference, including minimizing the impact of price fluctuations and providing a practical approach to costing materials. Finally, the report estimates the impacts of different costing methods on the company's financial statements, contrasting the weighted average method with FIFO and LIFO, and concludes that the weighted average method is the most suitable for Linfox Transport due to its stability and reduced impact on profit.

Business Accounting

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Introduction
Business accounting is the process of analysing, monitoring, evaluating the financial
statement of the company. Each and every company manage their financial statement in order
to analyse the financial position of the company. The company follows the different
accounting standards in order to adjust the different items. In this report, the discussion is
made on the topic the valuation of inventory of the company. In this report, Linfox Transport
has been taken into consideration to evaluate the value of inventory.
Measurement of Inventory
As per the AASB 102, inventories are valued as the lower of cost or net realisable value of
goods. Linfox Transport also follows the same method in order to maintain the inventory in
the financial statement. The company includes the purchasing cost, freight charges and the
other installation charges in order to evaluate the appropriate value of inventory (Weygandt,
Kimmel, and Kieso, 2015).
(Source: Linfox Transport, 2017)

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As per the financial report of the company, it has been seen that the company record the value
of inventory in the consolidated statement of the financial position with the amount of $140.8
million. The company states this information in “note 10” of the company annual report of
2017. The value of inventory of the company reflects that the company follows the
accounting standard 102.
Inventory system of the company
Periodic and Perpetual are the two system of inventory which can be applied by the
companies in order to record the value of inventory in their financial statement. Periodic
System states that the company record the inventory in the financial statement as per the
quarterly basis (Axsäter, 2015). But in the perpetual method, that the company records the
inventory in the financial statement on the daily basis. As the company operates the 1100
retail stores which reflects that it has the high value of inventory. It is necessary for the
company to maintain the value of inventory on the daily basis for the effective (Axsäter,
2015)
Advantage
Perpetual method is useful for the company to measure the appropriate amount of inventory
in order to record in the financial statement. This method is beneficial for the company to
evaluate the accurate amount of the inventory. It reduces the chances of theft and uncovers
shrinkage by recording the valuation of inventory (Accounting Tools, 2018).
Costing Method
FIFO, LIFO and the Weighted Average Method are the three methods which can be used by
the companies in order to evaluate the value of inventory. It has been seen that the company
is also applied this method in the company in order to evaluate the value of the inventory.

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(Source: Linfox Transport, 2017)
The analysis states that the company use the weighted average costing methods and it has
been seen that it is useful method for it as compare to the other method.
Reason of adopting the method
This method is useful for the company because it helps to minimise the effect of unusual
high-lower prices. This method is beneficial for the company in many ways so that is why it
applied to evaluate the cost of inventory. The main reason of using this method is that it is a
practical and suitable method for charging cost of material used to production. It is also an
appropriate method to analyse the operating result. The main of the company to evaluate the
inventory is to analyse the appropriate amount of inventory. Thus, this method is also
analysing the operating result that is why it is useful for the company (Play Accounting,
2018).

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Impacts of Costing Method
As discussed above, there are four costing methods which can be used by the company in
order to evaluate the inventory of the company. But the company applied the weighted
average method so that it can easily evaluate the inventory. The other methods of costing
affect the financial statement of the company. Three items of the financial statement have
been affected and these are profit, current asset and value of equity. As per the FIFO method,
the inventory has been evaluated on the basis of last inventory because in this method first
inventory sold first. If the amount of last inventory is increase then it will affect the amount
of closing inventory which is recorded in the financial statement in order to evaluate the net
profit. Profit is directly affected by changing the amount of closing inventory as per the
amount of last inventory. The amount of current asset and the value of equity is also
fluctuated with the increases and decreases of last amount of inventory. It is a loss for the
company if the amount of inventory is decreases because the amount of net profit is reduces
(Hoyle, Schaefer, and Doupnik, 2015).
In the LIFO method, the same three items is affected in the opposite manner which directly
affect the company. But in the weighted average method, the cost of inventory is evaluated
on the basis of average amount of all inventories. It is the best method because it does not
affect the profit with the increasing or decreasing rate. This is how the other methods of
costing affect the financial statement of the company (Frank, and Shen, 2016).
Conclusion
From the above analysis, it has been concluded that the company follows the accounting
standard of 102. This accounting standard of 102 states that the company evaluate the
inventory by considering the lower costing and net realisable value of the company. There are
two method of recording the inventory system such as perpetual and periodical. The company

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used the perpetual method in order to record the value of inventory in the financial statement.
The company used the weighted average method in order to evaluate the cost of inventory
and it is founded that this method is beneficial for the company as compare to the other
methods.

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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].
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting.
John Wiley & Sons.
Accounting Tools. (2018) Perpetual Inventory System. [online] Available from:
https://www.accountingtools.com/articles/2017/5/13/perpetual-inventory-system [Accessed
5/ 2/19].
Linfox Transport. (2017) Annual Report 2017. [online] Available from:
file:///C:/Users/SYSTEM~1/AppData/Local/Temp/ASX_PMV_2017.pdf [Accessed 5/ 2/19].
Hoyle, J.B., Schaefer, T. and Doupnik, T. (2015) Advanced accounting. McGraw Hill.
Frank, M.Z. and Shen, T. (2016) Investment and the weighted average cost of capital.
Journal of Financial Economics, 119(2), pp.300-315.
Axsäter, S. (2015) Inventory control (Vol. 225). Springer.