Telstra's Inventory Management: An Analysis of AASB 102 Compliance

This report delves into Telstra Corporation's inventory management practices, focusing on compliance with AASB 102. It identifies inventory as assets held for sale, production, or supplies, measured at cost or net realizable value, whichever is lower. Telstra employs the perpetual inventory method for immediate recording of sales and purchases, facilitating quick valuation and efficient profit and loss account preparation. The company uses the weighted average cost method, valuing inventory at the lower of cost or net realizable value, ensuring consistent costing, reduced manual work, and simple calculations. Alternative methods like LIFO and FIFO are discussed, highlighting potential impacts on cost of goods sold, tax burdens, and income manipulation. The report concludes by emphasizing the importance of Telstra's chosen methods for effective inventory control and financial reporting.

Running Head: INVENTORY 0
Inventory

INVENTORY 1
Contents
Question 1....................................................................................................................................2
Question 2....................................................................................................................................2
Question 3....................................................................................................................................3
Question 4....................................................................................................................................4
References........................................................................................................................................6

INVENTORY 2
Question 1
According to the AASB 102, followed by the Telstra Corporation the inventory is classified as
the assets which are kept for the purpose of the sale in the course of operating the ordinary
business, in the process of the production and the sale of the business or also in the form of
materials or supplies (Telstra, 2018). The inventories are measured at the cost or the net
realizable value as it can be observed from the annual report of the Telstra. Further as per the
AASB 102, inventory the cost of the inventories shall comprise of all the purchase and the
replacement costs to bring the inventory in such a situation that can be treated as the inventory in
the usable condition. Hence, according to the Telstra and in alignment of the AASB 102, the
inventory is calculated at the cost or the realizable value whichever is lower (Wild, 2017).
Question 2
Perpetual inventory method is used by the Telstra Company as this method is used to record the
sale or the purchase of the inventory on the immediate basis. Through the use of the perpetual
inventory system the company is going to get the enormous benefits hence the perpetual
inventory system will not only help the organization in enhancing the systems of production.
The perpetual inventory helps the Telstra in evaluating the quick valuation of the inventory on
account of continuous stock taking. It helps in the preparation and the presentation of the profit
and loss account with the great ease by the accountants. Also by introducing the perpetual
inventory system the regular supervision can be undertaken. This considerably reduces the
investment in materials and the storage expenses. This method is also helpful in formatting the
proper policies for the purchase of the stock (Center, Alliance and Insurance, 2016). This method
not only helps in the immediate detection of the errors and the misrepresentation, it is also

INVENTORY 3
beneficial in detecting the theft of the materials. Further this system helps in enduring the proper
availability of the working capital. This system ensures an effective control over the storing,
issue of the materials. This method is basically acting as the key driver for the Telstra as it helps
in avoidance of the clogging of the capital in one arena. This is an instrument adopted by the
Telstra as it helps in deriving out the best and the efficient management. The continuous
checking and the supervision of the working and the operations of the company delivers the
Telstra with replenishment of fresh stock, store records and fixing of the percentage by the
normal loss (Jones, Jones and Taylor, Wal Mart Stores Inc, 2017).
Question 3
The inventory system applied by the management of the Telstra is the weighted average cost of
capital. Under this method the inventory is valued at the cost or the net realizable value
whichever is lower. This approach is one of the methods to value the inventory (Telstra, 2018).
The weighted average method basically takes into consideration the entire costs and then spread
those costs to the respective units (Bryan, 2018). The value of the inventory costs includes the
inventory made at the beginning, along with any purchases made. There are certain advantages
due to which the company has chosen this method and the same have been outlined below. These
are the reasons why the company has followed the weighted average method (Telstra, 2018).
Consistency:
The major benefit of the usage of this method is that it is inclusive of the consistent cost of the
product. This includes the cost of goods sold as well as the inventory sold at the end of the
period, whereas in the alternative method the accountant needs to use a wide variety of costs,

INVENTORY 4
depending upon the level of the organization. Therefore this helps the Telstra Company in
performing at the consistent level (Chołodowicz and Orłowski, 2016).
Less manual work:
This method helps in minimizing the effect of the unusual prices and the low material prices.
This method is considered to be one of the most practical methods and the suitable ones for the
organization as it is relevant for charging the cost of material used for the production. Only the
few sheets of the paper are required for the accountant to maintain, therefore is the method that
requires less time and energy (Simeon and John, 2018).
Simple calculation:
Under the other methods like FIFO and LIFO methods the valuation of the cost is the difficult
part whereas the weighted average methods includes the simplest calculations among the other
methods. This is an advantage to the company as this does not require the skilled people and the
experts to perform the task and hence, the company need not spent too much on training sessions
(Wu, Ji and Zhu, 2017).
Question 4
Apart from the weighted average costing method of the inventory there are other methods as well
for measuring the performance of the company in terms of the inventory. The major impact the
company can face after adopting the LIFO or the FIFO method is that the cost of goods which
are not sold are measured against the revenues, the profits which have been recognized on the
paper are recorded. Moreover not only this heavy tax burden can be faced by the company
specially on using the FIFO methods. These methods are time consuming and they require more
complex ways to arrive at the figure which can be easily arrived in case of the weighted average

INVENTORY 5
costing method. The second criticism that has been faced by the LIFO method is that it is the
method which understates the inventory. If the historical costs are belonging to the old century it
reports the cost at the fraction of the replacement costs. Also the accountants can manipulate the
income by purchasing the amount of the goods at current high prices just before the end if the
financial year, with the major intention of selling the goods in the next period. Therefore there is
lot of situation where the company can face the drastic impact of the different costing method as
it would be off no use for the purpose of the comparison when the company shifts from one
financial year to another financial year (Telstra, 2018).

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References
Bryan, G.A., Brooks, C.C., Brightwell, D.B. and Enssle, B.D., Walmart Apollo LLC,
2018. System and method for management of perpetual inventory values based upon confidence
level. U.S. Patent Application 15/975,233.
Center, P., Alliance, A.M.A. and Insurance, A.M.A., 2016. Practice Management. Safety.
Chołodowicz, E. and Orłowski, P., 2016. Comparison of a perpetual and PD inventory control
system with Smith Predictor and different shipping delays using bicriterial optimization and
SPEA2. Pomiary Automatyka Robotyka, 20.
Jones, M.A., Jones, N.A. and Taylor, R.J., Wal Mart Stores Inc, 2017. Methods and systems for
updating perpetual inventory at retail sales facilities. U.S. Patent Application 15/366,701.
Simeon, E.D. and John, O., 2018. Implication of Choice of Inventory Valuation Methods on
Profit, Tax and Closing Inventory. Account and Financial Management Journal, 3(07), pp.1639-
1645.
Telstra, (2018) Annual Report [Online] Available from
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2018-Annual-
Report.pdf [Accessed on 2nd February 2019].
Wild, T., 2017. Best practice in inventory management. Routledge.
Wu, C., Ji, C. and Zhu, M., 2017. Analysis of the Thermal Contraction of Wide‐Thick
Continuously Cast Slab and the Weighted Average Method to Design a Roll Gap. steel research
international, 88(9), p.1600514.