CIPS L4M7 Exam With Confidence Using Practice Dumps

Explanation

Economic order quantity (EOQ) model is the method that provides the company with an order quantity. This order quantity figure is where the record holding costs and ordering costs are mini-mized. By using this model, the companies can minimize the costs associated with the ordering and inventory holding. In 1913, Ford W. Harris developed this formula whereas R. H. Wilson is given credit for the application and in-depth analysis on this model.

If the economic order quantity model is applied, the following assumptions should be met:

- The rate of demand is constant, and total demand is known in advance.

- The ordering cost is constant.

- The unit price of inventory is constant, i.e., no discount is applied depending on order quantity.

- Delivery time is constant.

- Replacement of defective units is instantaneous.

- There is no safety stock level, i.e., the minimum stock level is zero.

- Restocking is made by the whole batch.

Because the demand and lead time are constant, no stockout events can occur.

Explanation

Fixed assets may be sold anytime during their useful life. This gives rise to the need to derecognize the asset from balance sheet and recognize any resulting gain or loss in the income statement.

The accounting for disposal of fixed assets can be summarized as follows:

- Record cash receive or the receivable created from the sale:

Debit Cash/Receivable

- Remove the asset from the balance sheet

Credit Fixed Asset (Net Book Value)

- Recognize the resulting gain or loss

Debit/Credit Gain or Loss (Income Statement)

Example

ABC LTD purchased a machine for $2000 on 1st January 2001 which had a useful life of 5 years and an estimated residual value of $500. The machine was being depreciated on straight line basis. However, ABC LTD decided to sell the asset on1 January 2003 for $1500 in order to raise cash for the purchase of a new machine.

The disposal of the fixed asset will be recorded as follows:

Record cash received or the receivable arising from the sale:

Debit Cash $1,500

Remove the asset from the balance sheet

As a fixed asset is recognized in the balance sheet at the Net Book Value (i.e. Cost less Accumulated Depreciation), the machine will be removed from the accounts of ABC LTD in two parts:

First, the Machine Cost must be removed by crediting the ledger:

Credit Machine Cost $2,500

Second, the Accumulated Depreciation in respect of the machine must be removed by debiting the ledger:

Debit Accumalated Depreciation $600*

*Accumulated Depreciation: (2000 - 500)/5 x 2 Years

The combined effect of the above two transactions would be to remove the machine's net book value of $1400 (2000 - 600) from the balance sheet.

Recognize the resulting gain or loss on the sale of machine

ABC LTD received $1500 for an asset with a balance sheet worth of $1400. It therefore earned a gain of $100. The gain will be recorded as follows:

Credit Gain on Disposal $100

Explanation

Radio frequency identification (RFID) are items which use radio technology to identify itself and its location subject to having appropriate hardware and software.

RFID tags are made of three different components: an RFID chip, which is an integrated circuit (IC), an antenna, and a substrate.

A RFID Reader is a device that uses radio-frequency waves to wirelessly transfer data between itself and a RFID tag/label in order to identify, categorize and track assets. When combined with the right RFID software, a RFID reader can identify objects quicker, more accurately, at a reduced overall cost, and at various points of the object’s lifecycle.

Passive RFID systems use tags with no internal power source and instead are powered by the electromagnetic energy transmitted from an RFID reader. Passive RFID tags are used for applica-tions such as access control, file tracking, race timing, supply chain management, smart labels, and more.

Active RFID systems have three essential parts – a reader or interrogator, antenna, and a tag. Ac-tive RFID tags possess their own power source – an internal battery that enables them to have ex-tremely long read ranges as well as large memory banks.