Inventory subsystem (internal)
Internal 3 credits FIFO Weighted average Perpetual Inventory loss Internal controlThe entity is GST-registered on the invoice basis, using a PERPETUAL inventory system. Achieved processes individual inventory records using FIFO or weighted average cost; Merit adds RETURNS and SHORTAGE; Excellence adds DRAWINGS of inventory and/or a TRANSPOSITION ERROR between inventory items — alongside describing/explaining/justifying the subsystem's elements.
1 Reading the notation
The frequent/detailed/complex processing ladder, and the entity's costing method choice.📖 Terms the schedule grades you on
4 terms- Achieved processing
- Individual inventory records for balances/sales/purchases, using FIFO or weighted average.
- Merit processing
- Adds entries for returns and shortage.
- Excellence processing
- Adds entries for drawings of inventory and/or a transposition error between inventory items.
- Elements (describe → explain → justify)
- The perpetual system, purchase authorisation, checking receipt, managing levels, document control, payment authorisation, stocktake.
2 FIFO and weighted average cost
Two valid costing methods with genuinely different effects when prices move. Worked Costing a sale under FIFO vs weighted average 100 units in stock: 60 bought at 0, then 40 bought at 2. Sell 70 units. FIFO: the 70 units sold are costed using the OLDEST stock first — all 60 at 0, plus 10 at 2 = $600 + 20 = $720 COGS. Weighted average: recalculate the average cost first — (60×0 + 40×2) ÷ 100 = ,080 ÷ 100 = 0.80 per unit. 70 units × 0.80 = $756 COGS. FIFO gives lower COGS here (rising-price scenario), so FIFO reports higher profit than weighted average for the same sale. ✓ The method chosen is not just arithmetic — it genuinely changes reported profit and closing inventory value, which is why the standard treats the choice as worth describing and justifying.3 Returns and shortage
Reverse at the original cost; a shortage is what a stocktake reveals. ✕Recording a return at a NEW cost instead of the original
A returned item should reverse the entry at the SAME cost it was originally recorded at (using the costing method's value at that point) — not at today's cost, which would leave the running balance internally inconsistent.4 Drawings and transposition errors
Drawings at cost; a transposition error needs BOTH affected items corrected.What to check
- Drawings recorded at COST, not selling price — no sales income, no GST output.
- A transposition error corrected on BOTH inventory items involved.
- Both items' running balances re-verified after the correction.
5 Describing, explaining and justifying the elements
System → weakness → consequence → justified recommendation.What the report has to do
- Identify which system the entity uses and how stock actually moves through it.
- Use the entity's own stocktake or turnover figures as evidence of the problem.
- Quantify the loss where the figures allow, and link it to mark-up % and turnover.
- Justify one recommended control, weighing its cost against the loss it prevents for THIS entity.
Practice
Recall it first, then use it — testing yourself builds the memory, where rereading the notes above only feels easier.
Recall and application shuffled together — you have to work out what each item wants before you can answer it, which is the part the exam actually tests. Both kinds feed the same spacing schedule, so anything you miss comes back sooner.
Say the answer out loud before flipping — that attempt is where the learning happens, even when you get it wrong.
Exam-style only. Instant feedback, shuffled each attempt, best score saved on this device.