Active learning ideas
Inventory is often the largest current asset for trading businesses in Singapore. This topic focuses on how to value unsold goods at the end of a period. Students learn to apply the FIFO (First-In, First-Out) and Weighted Average cost formulas, which are essential for determining both the value of inventory on the balance sheet and the cost of sales on the income statement.
Activity 01
Students act as warehouse managers. They 'buy' batches of candy at different prices and 'sell' them to customers, using FIFO and Weighted Average to calculate their remaining stock value.
How is the cost of inventory determined?
Activity 02
Students analyze how inflation affects profit under FIFO versus Weighted Average. They discuss in pairs which method a manager might prefer if they want to show a higher profit.
What is the difference between FIFO and weighted average methods?
Activity 03
Provide a list of 'damaged' inventory items with their original costs and expected selling prices. Groups must decide the correct valuation based on the Lower of Cost and NRV rule.
How does the lower of cost and net realisable value rule apply?
A few notes on teaching this unit
Watch Out for These Misconceptions
FIFO means the physical goods must be sold in that exact order.
FIFO is a cost flow assumption, not necessarily a physical flow. Students can use different colored cards to see that while any card can be 'sold', the cost assigned must follow the FIFO rule.
Inventory should always be valued at its selling price.
Inventory is valued at cost to avoid recognizing profit before a sale occurs (prudence). Peer explanation of the 'realisation' concept helps clarify why we don't use selling price.
Methods used in this brief
Property, Plant and Equipment
Covers the recognition, measurement, and depreciation of non-current assets. Students will calculate depreciation using straight-line and reducing balance methods and record asset disposals.
8 methodologies
Trade Receivables and Impairment
Addresses the accounting treatment for trade receivables and the allowance for impairment of receivables. Students will analyse the impact of bad debts on financial statements.
8 methodologies