Page 24 - Accountancy for Advanced Secondary Schools Teachers Guide Form Five

inventory system through definitions, advantages, disadvantages
and differences of those inventory systems.

2. Factors to consider in decision making, practical applications
and justifications: Emphasise the students to consider the
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factors before deciding what good inventory method to use and
its applicability. These factors can be business context, nature
of goods sold, size of the business, availability of resources and
justification of choices of methods by giving examples so as to
explain why those methods are suitable.

Activity 2.2
When assigning this assignment, make sure that students take into
account the subsequent actions and components in order to successfully
examine and contrast the financial statements of two businesses utilising
various inventory valuation techniques (FIFO and WAM):

1. Understanding FIFO and WAM: Emphasise the students to
understand well the meaning of those methods through their
definitions, reasons for use such as simplifying accounting and
providing a consistent cost flow and provides a more accurate
reflection of current inventory value on the balance sheet, and
impacting on earnings through smoothing out price fluctuations,
leading to more stable earnings, but can result in higher COGS and
lower profits compared to FIFO in times of rising prices.

2. Analyzing financial statements: Choose two companies in the
same industry but using different inventory methods (FIFO and
WAM), to obtain financial statements by accessing the financial
statements from the stock exchange websites, focus on the income
statement, balance sheet, and notes to the financial statements,
use the inventory valuation method specific to each company to
calculate the cost of goods sold (COGS) and ending inventory and
ensure accurate calculations by understanding each company’s
inventory turnover and purchase patterns.

Teacher’s Guide Form Five
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23/06/2024 17:45
ACCOUNTANCY_TG_2024_FINAL DUMMY.indd 10
ACCOUNTANCY_TG_2024_FINAL DUMMY.indd 10 23/06/2024 17:45