perpetuity

Examples of perpetuity in the following topics:

• Perpetual vs. Periodic Counting

  • Perpetual inventory updates the quantities continuously and periodic inventory updates the amount only at specific times, such as year end.
  • Perpetual inventory, also called continuous inventory, is when information about amount and availability of a product is updated continuously.
  • A company using the perpetual inventory system would have a book inventory that is exactly (within a small margin of error) the same as the physical (real) inventory.
  • Perpetual inventory systems can still be vulnerable to errors due to overstatements (phantom inventory) or understatements (missing inventory) that occurs as a result of theft, breakage, scanning errors, or untracked inventory movements.
  • While the perpetual inventory method provides a close picture of the true inventory information, it is a good idea for companies using a perpetual inventory system to do a physical inventory periodically.

• Reporting Inventories

  • There are ways to account for inventory, periodic and perpetual.
  • The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times.

• LIFO Method

  • LIFO under perpetual inventory procedure: Under this procedure, the inventory composition and balance are updated with each purchase and sale.
  • Applying LIFO on a perpetual basis during the accounting period, results in different ending inventory and cost of goods sold figures than applying LIFO only at year-end using periodic inventory procedure.
  • For this reason, if LIFO is applied on a perpetual basis during the period, special inventory adjustments are sometimes necessary at year-end to take full advantage of using LIFO for tax purposes.
  • Applying LIFO on a perpetual basis during the accounting period, results in different ending inventory and cost of goods sold figures than applying LIFO only at year-end using periodic inventory procedure.
  • For this reason, if LIFO is applied on a perpetual basis during the period, special inventory adjustments are sometimes necessary at year-end to take full advantage of using LIFO for tax purposes.

• Nature of Inventory

  • There are two principal systems for determining inventory quantities on hand: periodic and perpetual system.
  • It does lack some of the planning and control benefits of the perpetual system.
  • The perpetual system requires continuous recording of receipt and disbursement for every item of inventory.

• Gross Profit Method

  • A company will chose an inventory accounting system, either perpetual or periodic.
  • In perpetual inventory the accounting records must show the amount of inventory on hand at all times.

• Cost Flow Assumptions

  • LIFO and weighted average cost flow assumptions may yield different end inventories and COGS in a perpetual inventory system than in a periodic inventory system due to the timing of the calculations.
  • In the perpetual system, some of the oldest units calculated in the periodic units-on-hand ending inventory may get expended during a near inventory exhausting individual sale.
  • In the LIFO system, the weighted average system, and the perpetual system, each sale moves the weighted average, so it is a moving weighted average for each sale.

• Impact of Inventory Method on Financial Statement Analysis

  • It's important to note that these methods will be affected by the system used to update inventory – "perpetual" or "periodic".
  • A perpetual system updates inventory every time a change in inventory occurs, and a periodic system updates inventory at the end of the accounting period.
  • In addition to the inventory method chosen, use of a perpetual or periodic inventory system will affect the amount of current assets in the balance sheet and gross profit in the income statement, especially when prices are changing.

• Conducting a Physical Inventory

  • A perpetual inventory system tracks the receipt and use of inventory, and calculates the quantity on hand.

• Specific Identification Method

  • Therefore, periodic and perpetual inventory procedures produce the same results for the specific identification method.
  • Therefore, periodic and perpetual inventory procedures produce the same results for the specific identification method.

• Indefinite-Life Impairment

  • Some examples of indefinite-life intangibles are goodwill, trademarks, and perpetual franchises.