Case 12<\/p>\n
<Question>
\nWe started to import sport wears from a Turkish factory and sell it in Japan.
\nWe would like to know how to take care of the regular inventory for\u00a0daily management, accounting and tax purposes.<\/p>\n
<Answer>
\n1.\u00a0\u00a0\u00a0 Daily control<\/p>\n
Establishing a perpetual\u00a0inventory system (with an inventory ledger) is very important for keeping track of receiving and dispatching, balances, inventory aging, etc.Using a computer system makes it easier to prepare the inventory ledger though, if the quantity of inventory is not material preparing the inventory ledger with a manual\u00a0or using an excel sheet is good enough.
\nWhen the inventory ledger is prepared, the following information is necessary for appropriate inventory management.<\/p>\n
The inventory ledger should be prepared item by item and be followed up in a timely manner to grasp the necessary information at any time. Also it is reconciled to other accounting records regularly such as the general ledger.<\/p>\n
2.\u00a0\u00a0\u00a0 Physical count of inventory<\/p>\n
Implementing a physical count of inventory is very important to fix the closing balance for accounting and tax purposes. \u00a0As a result of the physical count of inventory, validity and efficiency of daily inventory control would be clear. If book-to-physical variances are larger than expected or relatively large, the daily inventory control procedures should be reconsidered.\u00a0 The reasons for book-to-physical variances vary though, they should be settled in a timely manner and reflected in the inventory control.<\/p>\n
If the accuracy of the inventory is not reliable, physical inventory counts should be performed regularly such as on a monthly or quarterly basis. Additionally, there are several methodologies\u00a0for doing inventory though, accountants offer support by\u00a0preparing the physical inventory count manual.<\/p>\n
3.\u00a0\u00a0\u00a0 Inventory aging<\/p>\n
If the inventory ledger meets the above requirement, the inventory in excess of certain periods such as over 6 months, 1 year, etc since its purchase can easily be accounted for. Basically, inventory sells according to trends, especially fashion- related items\u00a0and inventory prone to obsolescence, therefore, understanding inventory aging is very important. Over a certain period inventory should be sold as soon as possible, and having a good comprehension of the inventory aging makes it possible to plan a business strategy for the selling time and price of such inventory. It depends on the inventory however, if it is over 1 year, considering a revaluation of the inventory is necessary to forecast\u00a0the appropriate profit in the future.
\nAddtionally, if it is difficult to control inventory aging by the ledger, garsping inventory turnover period is available.<\/p>\n
4.\u00a0\u00a0\u00a0 Accounting policy (Tax purpose)<\/p>\n
The assignment of the cost of inventories is to be done by using either the first-in first-out (inventory items on hand at the end of the period are assigned the cost of those items most recently purchased) or weighted average cost formula (inventory items on hand at the end of the period are assigned the weighted average of the cost of those items on hand at the beginning of the period and those produced or purchased during the period), etc. The inventory asset account when items are purchased is calculated by multiplying the quantity of the item by the current cost. When starting a business in Japan, the \u201cNotice of Adoption of Accounting Method\u201d \u00a0application form is filed to the tax authority and the inventory policy is decided at the time. If the inventory policy is not declared to the tax authority, the last cost method would be applied automatically. The inventory asset account when items are purchased is calculated by multiplying the quantity of the item by the current cost.
\nAdditionally, the cost of inventories is the aggregation of costs of purchase (e.g. purchase price, import duties, transportation and handling costs) net of trade discounts and rebates.
\nIf obsolete inventories are disposed, obtaining some certification, a record, or a sample of the disposal is very important to prove the loss of disposed obsolete inventories for tax purposes.<\/p>\n
5.\u00a0\u00a0\u00a0 Taxes<\/p>\n