The specific identification method is used to track individual items of inventory. This method is applicable when individual items can be clearly identified, such as with a serial number, stamped receipt date, bar code, or RFID tag. Show
Specific Identification Method RequirementsThe principle requirements of a specific identification tracking system are as follows:
These requirements can be achieved with a simple accounting system, possibly just an electronic spreadsheet. This means that a smaller business should find it relatively easy to employ the specific identification method, especially when unit volumes are low. Advantages of the Specific Identification MethodThe specific identification method introduces a high degree of accuracy to the cost of inventory, since the exact cost at which something was purchased can be recorded in the inventory records, and charged to the cost of goods sold when the related item is sold. Disadvantages of the Specific Identification MethodThis method is rarely used, because there are few purchased products that are clearly identified in a company's accounting records with a unique identification code. Thus, it is typically restricted to unique, high-value items for which such differentiation is needed. Most organizations instead sell products that are essentially interchangeable, and so are more likely to use a FIFO, LIFO, weighted average, or similar system. It is also very time-consuming to track inventory on an individual unit basis, which restricts its use to smaller inventory quantities. Examples of the Specific Identification MethodExamples of situations in which the specific identification method would be applicable are a purveyor of fine watches or an art gallery. Inventory is defined as goods held for resale in the ordinary course of business. Which of the following would not be included in inventory for any type of business. 2.In performing a stocktake care must be taken with goods in transit. Which of these statements is true? A.Stock on consignment is regarded as sold by the consignor B.Stock on consignment is not included in the stock of the consignor C.Goods in transit should be included in both the purchasers and the seller's inventory D.Sales invoices for two weeks after the end of the accounting period should be reviewed to identify goods in transit 3.The accounting standard that deals with inventories is: 4.Moon uses a periodic inventory system with the specific identification method of cost assignment. The following data are available: The value of closing inventory at 31 January is: 5.The statement that is correct is: A.LIFO assumes the last goods purchased are the first goods sold B.LIFO assumes the first goods purchased are the first goods sold C.LIFO assumes that cost of sales consists of the oldest purchases D.LIFO assumes that stock at end consists of the most recent purchases 6.Moon uses a periodic inventory system with the weighted average method of cost assignment. The following data are available: DateUnitsUnit CostJan6Beginning inventory15Purchase26Purchase31Sale from the 15 January purchaseClosing inventoryWhat is the value of cost of sales for January? 7.For which of these would the specific identification method of costing inventory be unsuitable? D.Petrol at a service station 8.Moon uses a periodic inventory system with the specific identification method of cost assignment. The following data are available: DateUnitsUnit CostJan6Beginning inventory15Purchase26Purchase31Sale from the 15 January purchaseClosing inventoryWhat is the value of cost of sales for January? 9.Moon uses a periodic inventory system with the last-in first-out method of cost assignment. The following data are available: DateUnitsUnit CostJan6Beginning inventory15Purchase26Purchase31Sale from the 15 January purchaseClosing inventoryWhat is the value of closing inventory at 31 January? 10.If inventory costs are rising which method gives the highest profit? 11.Which of these is an advantage of the weighted average method of applying costs to inventory? A.It is not subject to profit manipulation B.The profit and closing inventory values tend to be 'smoothed' compared to other methods C.It is simple to understand 12.The statement concerning the perpetual inventory method that is incorrect is: A.A stocktake is required to estimate cost of sales B.A continuous record is kept of all movements in inventory C.With the increased use of computers it has become the most common system D.Cost of sales is calculated for each transaction 13.The average cost of AD computer modems on 30 March, as per the stock card, is $21.06. If 200 modems are sold at $24.00 each, what is the cost of the modems charged to the income statement, assuming the weighted average method of costing is used? 14.The essence of the perpetual method of accounting for inventory is: A.All movements in each item of stock are tracked via detailed inventory records C.Cost of sales is calculated at the end of the accounting period D.It is useful for high value, low volume items 15.The stock of AD computer modems at 20 March, as per the stock card, is 1 010 units which cost, in total, $20 800. If a purchase of 500 modems is made for $11 000, what is the average cost of the modems after the purchase? 16.Assuming rising prices, which of the following statements is correct? A.FIFO reports a lower value for COGS than other methods B.FIFO reports a higher value for COGS than other methods C.FIFO reports a lower value for closing inventory than other methods 17.Net realisable value in relation to inventory is: A.Estimate selling price less stock loss B.Estimated discounted value C.Estimated replacement value D.Estimated selling price less anticipated further costs to complete the sale 18.The statement that is untrue is: A.Inventory is normally valued at cost B.In certain circumstances some inventory items will be valued at below cost C.In certain circumstances some inventory items will be valued at above cost D.Net realisable value is related to estimated market value 19.Which of these are reasons for the selling value of some inventory items falling below their cost price? A rise in the market price 20.Which of these is not a possible source of error in calculating closing inventory? A.An incorrect cut off between accounting periods B.Mistakes in counting during the stocktake C.Mistakes in the price at which the goods are sold to customers D.None of the above, i.e. all are possible sources of errors 21.If Carmel knows that the ending inventory at retail for her corner store is $16 000 and her cost to retail percentage is 65%, her ending inventory at cost can be estimated as: 22.Won Ltd has a historical gross profit percentage of 35%. Net purchases for six months were $1 400 and sales $2 000. Inventory at the end of the previous period was $200. If Won Ltd prepares an interim balance sheet the amount that can be estimated for closing inventory is: 23.Liquidator Lounges' showroom was flooded and its inventory was totally destroyed. Its accounting records were damaged but the following information was salvaged: Which of the following information concerning inventory is not required to be disclosed in external financial reports? D.Method of valuation, eg. FIFO, weighted average 25.The formula, cost of sales/average inventory, measures: B.The number of times, on average, that inventory is turned over per year C.The mark-up on inventory expressed as a percentage of the cost price This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test. Which is the reason why the specific identification method may be considered ideal for the assigning cost to inventory and cost of goods sold?The specific identification method introduces a high degree of accuracy to the cost of inventory, since the exact cost at which something was purchased can be recorded in the inventory records, and charged to the cost of goods sold when the related item is sold.
What is specific identification method?The specific identification method relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together. It is useful and usable when a company is able to identify, mark, and track each item or unit in its inventory.
Why does the specific identification inventory method work well for business such as automobile dealerships?Why does the specific identification inventory method work well for business such as automobile dealerships? The inventory keeps track of the automobiles that are first-in first-out. This method works because each automobile has a unique serial number. It best shows the current cash flow at all times.
Which of the following best describes the specific identification method of inventory valuation?The correct answer is C. The specific identification method matches the actual historical costs of specific inventory items to their physical flow. The FIFO, weighted average cost, and LIFO methods, on the other hand, are based on cost flow assumptions.
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