ABSTRACT
This research work was conducted on with special reference to the
impact inventory valuation methods has on financial report statements of
manufacturing companies. For a longtime now the Accounting profession has not
been able to come up with any particular technique or method to be used
uniformly in valuing inventory. This research work examined if the method used
was as a result ofthe prevailing economic circumstances. A survey research
design was adopted for the study; data collected were gotten from both the
primary and secondary sources. An infinite population of over 3000 was used and
a finite population of 220. Three hypotheses were tested at 5 percent level of
significance. Tables and percentages were employed to answer the questionnaires
while the statistical regression coefficient analysis and Z- test were used to
test the hypotheses. It was found amongst others that the prevailing economic
parameter influences the decision of choice of inventory valuation method used.
The Accounting professional bodies should try as much as possible to adopt a particular
method of inventory valuation and the weighted average method was recommended
as a method that can withstand any economic challenges.
TABLE OF CONTENTS
TITLE
PAGE
APPROVAL
PAGE
DEDICATION
ACKNOWLEDGMENTS
ABSTRACT
TABLE
OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1
BACKGROUND OF STUDY
1.2
STATEMENT OF THE PROBLEM
1.3
OBJECTIVES OF STUDY
1.4
RESEARCH QUESTIONS
1.5
HYPOTHESES
1.6
SIGNIFICANCE OF THE STUDY
1.7
SCOPE OF THE STUDY
1.8
LIMITATION OF THE STUDY
1.9
DEFINITION OF TERMS
CHAPTER TWO: LITERATURE
REVIEW
2.1
HISTORY PERSPECTIVE
2.2
THE PROBLEM OF INVENTORY MANAGEMENT
2.3
INVENTORY VALUATION
2.4
INVENTORY VALUATION METHODS
2.5
REFERENCE
CHAPTER THREE: RESEARCH METHODOLOGY
3.1
INTRODUCTION
3.3
AREA OF THE STUDY
3.4 POPULATION OF THE STUDY
3.5
SAMPLE SIZE AND SAMPLING TECHNIQUES
3.6
INSTRUMENT
OF DATA COLLECTION
3.7
VALIDITY OF THE INSTRUMENT
3.8
RELIABILITY OF INSTRUMENT
3.9
METHOD OF DATA COLLECTION
3.10
METHOD OF DATA ANALYSIS
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 DATA ANALYSIS
4.2 TESTING OF
HYPOTHESES
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1
SUMMARY OF FINDINGS
5.2
RECOMMENDATIONS
5.3
CONCLUSION
BIBLIOGRAPHY
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Inventory valuation allows
companies to provide a monetary value for items that make up their inventory
(stock).
Inventories are usually the
largest current asset of a business and are as important as funds (cash). It is
a form of fund tied up in assets (current assets). It‟s proper or accurate
measurement or valuation cannot be overlooked as it forms a greater percentage
of an enterprise‟s current assets in particular and a total asset in general.
For manufacturing companies, inventories usually represent approximately 20 to
60 percent (%) of their assets. If inventory is not properly valued, it may
result that expenses and revenue may as well not be properly matched and a
company could make poor business decisions that will affect the company‟s
profit. It is essential the way assets are valued because it could be attributable
to the numerous benefits which an organization stands to gain by keeping an
accurately valued stock that meet shareholders needs, demands for financial
information and also the relevant specification of a particular organization.
However, it will be a waste of time if the record accuracy is poor.
Inventory
in manufacturing company or concern comprises of the following components:
§ Raw
materials inventory
§ Work-
in- progress (semi- finished goods) inventory
§ Finished
goods inventory
These components show the
relationship between production and sales, and it enables an organization to
offer better service to its customers at a reasonable price.
However, the technique or
method used in the valuation of inventories varies and the values placed on
inventories vary in time with the prevailing economic parameters (inflation,
deflation or static economy) and it can also be influenced by the management
policy of the organization. For instance, if the objective of an enterprise is
that of profit maximization, it may result to the use of a particular method so
as to disclose lower profit, thereby using excess fund at its disposal to
expand its operations. This type of organization may discard other methods of
valuing inventories in favour of the method that suit it objectives.
According to Nwoha (2006:69),
no area of accounting has produced wider difference in practice than the
computation of amount at which inventories (stocks) and work-in-progress as
stated in financial account.
Inventory valuation method used
by an enterprise is determined by a number of reasons. These include inflation,
differences in quantity discounts, frequent changes in prices of commodity,
buying from different suppliers and also the nature of items or product. For
instance a company that deals on perishable goods, let‟s say a grocery store,
prefers an inventory valuation method that recognizes the out flow of goods
that were first in stock. This arises as a result of the perish ability of the
items treated and the high turnover rate could also be accounted for this
choice of method FIFO (first-in, first-out). The level of the three component
of the inventory stated earlier differs among organizations depending on the
nature and volume of operation undertaken. Manufacturing companies have a high
level of raw material inventory and semi-finished goods inventory as it is
found in the grocery stores. Considering the large sums of money tied up in
inventory as earlier stated, Horngren and Foster (2004:756) pointed out that it
is pertinent to have an
“information model” as a result of the obvious fact that if
stock matters (receipts, issues and controls) are not properly handled, it
would go a long way to jeopardize the financial status (liquidity) as well as
the profitability position of the firm. Hence, this research work is a step in
the right direction to address and highlight the role of account professional
towards the achievement of choosing and adopting appropriate inventory
valuation methods for each group of industry.
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