Inventories Evaluation Method Used by Nestl (Malaysia) Berhad

The valuation of inventories used by Nestl (Malaysia) Berhad is First-In, First-Out (FIFO)
method. FIFO method is one of the methods commonly used to calculate the value of
inventory on hand at the end of an accounting period and the cost of goods sold during the
period. Wood and Sangster (ed.2012, p.358) states that this method is whereby the first items
to be received are the first to be issued.

One of the reasons why Nestl used FIFO method is because most of their finished goods are
perishable and have short expiry date. Furthermore, since Nestl is a big company with a
large amount of inventories, it has been proved that a good control over inventory must be
maintained (Reeve, Warren and Duchac, 2007, p.308). A little mistake made will have a
significant impact on the financial statements.

Besides, it is also due to the decreasing prices of the inventory in order Nestl to minimize the
taxes paid, since the oldest inventory was more expensive than the newest and as a result the
net income was lower than that would be if the company had applied other inventories
evaluation methods.

Amount of Closing Inventories as Reported in the Financial Statement of Nestl

(Malaysia) Berhad

Based on the Nestl (Malaysia) Berhad Financial Report 2013 (2014, p.58), the value of raw
and packaging materials in 2013 is RM179, 964,000. Meanwhile, the value of work-in-
progress inventories is RM 19,817,000. The finished goods are worth RM 187,317,000 and
the spare parts are worth RM 21,516,000. The financial report shows that the value of
inventories has decreased in 2013 compared to 2012. In 2012, the value of raw and packaging
materials is RM 181,714,000 while the work-in-progress inventories are RM 18,951,000. The
finished goods are worth RM 189,403,000. Meanwhile, the spare parts are worth RM
21,102,000.

In group, the amount of closing inventories as reported in the Nestle (Malaysia) Berhad
Financial Report 2013 (2014, p.32) is RM 408,614,000 in year 2013 and RM 411,170,000 in
year 2012. This shows an decrease in the value of inventories in year 2013 compared to year
2012. The related financial statements are attached in the appendix.