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This is more of a general accounting practice question rather than a Dynamic issue but I've been asked to change the costing method for many of our manufactured items from Actual LIFO to Standard LIFO.The general practice is that with standard costing, the item will always be manufactured and valued in inventory at the same cost each time it is manufactured. Any variances between the actual costs and standard costs get allocated to different account numbers for later reconciliation and analysis. For this reason, when changing an existing item to Standard costing, all existing LIFO layers (with varying costs) are deleted, (as the cost is now technically standard).I've been asked to customize this behavior so that when changing from Actual LIFO to Standard LIFO, the existing costs layers do not get removed and also, future changes to the standard costs will also retain their own cost layers (providing the stock from layers is not depleted).Is what I'm being asked to do compliable with GAAP/SOX? Every time I research standard costing, there is no mention of cost layers with regards to standard cost items, from my googling, I keep arriving at the answer that standard cost items can only have one cost.
Is there anyone who can assist with this? The issue is not getting more complex because I'm now being told the Inventory Cost Report is incorrect because it's valuing all of the existing stock at standard cost BUT, the accountants say it should be valued at the old LIFO layer cost while any new inventory should be values at the Standard cost
This just doesn't seem right to me at all, you can't mix costing methods for the exact same product right? I told them that every example I have read on the internet specifically states that when using standard costing, all qty of that specific item should be valued at the same cost. They told me the examples are wrong and you can't just re-assign a new value to all of your old stock just because you switched costing methods.
That is true. You can not just change the costing method of any particular item and change the complete inventory valuation.
In NAV also, you can not change the Item Costing Method as system will not allow to do so.
You need to actually clear all the inventory from current item and upload the inventory in new item No., if you really want to change the item costing method. You need to ensure the overall value still remains the same.
For each individual items, you can have single costing method and single inventory valuation
I had no choice in the matter and are implementing the costing processes they required. At least I have documentation to fall back on if it becomes an issue.
As for the accounting principles itself, you need to:
- Maintain the same costing method for one item or group of items, applied for one accounting period (that is, for the same item you do not change the costing method in one accounting period. That is basically because your calculate and pay profit tax on the basis of tax accounting policy, and the profit tax is calculated for all accounting period. E.g., if you have annual calculation of corporate profit tax (which is most likely the case), and you change the costing method inside this accounting period, you need to recalculate backwards all the COGS starting from the beginning of the year.
- Apply the same costing method to similar items or group of items (otherwise it is difficult to ground to auditors or tax office why you had applied one method for one item and the other for basically very similar item).
- Apply only one costing method to one item at a time (that is, you cannot have one item for which you simultaneously apply two different costing methods at a time).
So, my point is that you will need to write-off all existing items and create new items and value them back with a new costing method; there is unfortunately no fast magic option to convert all the existing inventory from one costing method to another in NAV. Moreover, it would be wise to do this change within the beginning of the accounting period (however I do not know the details of your accounting legislation).
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