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Yaeger FAR > 10: Inventory > Flashcards

10: Inventory Flashcards

0
Q

Inventory:

Ownership of goods

A

Determination of which items are to be included in inventory

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1
Q

Inventory is defined as tangible personal property…3 possibilities

A

1 held for sale in ordinary course of business

2 In process of production for sale

3 to be used currently in production of items for sale

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2
Q

Inventory:

Ownership of goods takes into account items such as…2

A

1 Shipping terms

2 Consignments.

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3
Q

Inventory:

Cost is the determination of…

Ex.

A

Which costs are being assigned to inventory

Ex. Freight and overhead, product costs vs. Period costs

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4
Q

Inventory:

Cost flow assumptions are the determination of…

A

Costs assigned to COGS and inventory under various cost
Flow methods

Such as FIFO and LIFO

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5
Q

Inventory:

Valuation is the determination of…

A

How and when inventories should reflect their market values

Using rules such as LCM

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6
Q

The primary basis of accounting for inventories is…

2) which includes…

A

Cost

2) the cash of FMV of consideration given in exchange for it

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7
Q

Inventory cost is a function of what 2 variables?

A

1 number of units included in inventory, and

2 costs attached to those units (COGS)

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8
Q

The costs to be included in inventory include…

A

All costs necessary to prepare goods for sale

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9
Q

3 normal costs included in inventory

A

1 freight in/transportation in

2 handling costs

3 normal spoilage

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10
Q

For a manufacturing entity:

The cost of inventory includes…4 costs

A

1 direct materials
2 direct Labor
3 direct factory overhead
4 indirect factory overhead

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11
Q 
For a manufacturing entity:
1 direct materials
2 direct Labor 
3 direct factory overhead
4 indirect factory overhead
Are then allocated to...
A

Work in progress and finished goods inventory account

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12
Q

For a manufacturing entity:

Variable production overhead, is allocated to…

A

Each unit of production based on actual use of production

Facilities

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13
Q

For a manufacturing entity:

Fixed overhead is allocated based on…

A

The normal capacity of production of the production facilities

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14
Q

For a manufacturing entity:

The normal capacity of the production facility is…

A

The production expected to be achieved over a number of periods
Or seasons under normal circumstances

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15
Q

For a manufacturing entity:

Normal capacity of production takes into account…

A

The loss of capacity resulting from planned maintenance

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16
Q

For a manufacturing entity:

The range of normal capacity will vary based on…

A

Business and industry specific factors

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17
Q

For a manufacturing entity:

The actual level of production may be used if it…

A

Approximates normal capacity

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18
Q

For a manufacturing entity:

unallocated fixed overhead costs are recognized…

A

As an expense in period in which they are incurred

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19
Q

Any abnormal costs for freight in, handling costs and spoilage are treated as…

A

Current period expenses and aren’t allocated to inventory

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20
Q

Interest on inventories routinely produced or repetitively produced in large quantities is…

A

Not capitalized as part of inventory cost

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21
Q

For a merchandising concern: recording of purchases

The amount used as a purchase price for goods will vary depending on whether…

A

The gross profit or net method is used for recording purchases

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22
Q

Gross method is used to…

2) the purchase discount is netted against…

A

Record the purchases, then any subsequent discount taken
Is shown as purchase discount

2) the purchases account in determining COGS

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23
Q

If the net method is used to record purchases, then any purchase discounts offered are assumed…

A

Taken and purchase account reflects the net price

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24
Q

Net method:

If subsequent to the recording of the purchases the discount is not taken (payment is tendered after the discount period has elapsed) a…

A

Purchase discounts lost account is debited

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25
Q

Net method:

The balance in purchase discounts lost account does not enter into the…

2) the balance in purchase discounts lost account is treated as…

A

Determination of cost of goods sold

2) a period expense

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26
Q

Regardless of whether the gross method or net method is used, purchases are always recorded…

A

Net of allowable trade discounts

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27
Q

Trade discounts, are discounts that are…

A

Allowed to the entity because it’s a wholesaler, good customer
Or merely the item is on sale at reduced price

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28
Q

Is Interest paid to vendors, included in the cost of inventory?

A

No

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29
Q

The determination of cost of goods sold and inventory under each of the cost flow assumptions depends upon…

A

The system used to record inventory: periodic or perpetual

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30
Q

Periodic system

A

Inventory is counted periodically and then priced

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31
Q

In the periodic system, the ending inventory is usually recorded in…

A

The COGS entry

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32
Q

Standard journal entry under the periodic system

A

Ending inventory. Xxx
COGS. (Plug)
Beginning Inventory. Xxx
Purchases Xxx

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33
Q

Periodic calculation for COGS

A

purchases
- change in inventory
______
COGS

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34
Q

Perpetual system

A

Running total is kept of the units on hand and possibly their value

By recording increases and decreases as they occur

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35
Q

Perpetual system:

When inventory is purchased, the…

A

Inventory account, rather than purchases is debited

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36
Q

Under the perpetual system, when inventory is sold, what is the following journal entry made?

A

COGS. (Cost)

Inventory. (Cost)

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37
Q

The weighted avg. method is used under the…

A

Periodic system

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38
Q

The moving avg method is used under the…

A

Perpetual system

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39
Q

What kind of asset is inventory?

A

Nonmonetary asset

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40
Q

How do you record a $100 purchase with terms of 2/10 net 30:

Under the gross method, when a discount is taken

A

Purchases. 100
A/P. 100

A/P. 100
Purch. Disc. 2
Cash. 98

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41
Q

How do you record a $100 purchase with terms of 2/10 net 30:

Under the gross method when no discount is taken

A

Purchases 100
A/P. 100

A/P. 100
Cash. 100

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42
Q

How do you record a $100 purchase with terms of 2/10 net 30:

Under the net method when a discount is taken

A

Purchases. 98
A/P. 98

A/P. 98
Cash. 98

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43
Q

How do you record a $100 purchase with terms of 2/10 net 30:

Under the net method when no discount is taken

A

Purchases. 98
A/P. 98

A/P. 98
Purchase Disc. 2
Cash. 100

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44
Q

Under the periodic system, What is the equation for COGS?

A 
Beg Inv.
\+ COGPurchased
\_\_\_\_\_\_\_\_\_\_\_\_
= COGAS
- EI
\_\_\_\_\_\_\_\_\_\_\_
COGS
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45
Q

Under the periodic system, What is the equation for COGPurchased?

A 
Gross Purchases
- Purch. Disc.
- Purch. R+A
\_\_\_\_\_\_\_\_\_\_\_\_
= net Purch
\+ freight in/transport in
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
COGPurchased
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46
Q

Shrinkage

A

When inventory gets lower (due to theft or damage)

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47
Q

Specific identification

A

Individual inventory lots purchased or manufactured are separately
Identified

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48
Q

Under specific identification, when items are sold or otherwise disposed of, the actual cost of the specific item is…

A

Assigned to the transaction

and ending inventory consists of actual costs of specific items on
Hand

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49
Q

When is specific identification usually used?

A

High cost and individually identifiable items

Cars, appliance jewelry

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50
Q

The average cost flow assumption assumes that all costs and units are…

A

Merged so no specific item or cost can be separately identified

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51
Q

Under average cost both cost of goods sold and ending inventory are…

A

Valued at average unit cost

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52
Q

The average cost method may be used with either…

A

The periodic or perpetual inventory system

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53
Q

Weighted avg. - periodic:

The cost of units is calculated at…

A

The end of the period based on avg. price paid (including

freight, etc.), weighted by # of units purchased at each price

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54
Q

Calculation for the weighted number of units purchased at each price

A

weighted number of units purchased at each price =

Cost of goods available for sale)/(# units available for sale

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55
Q

Moving avg.- perpetual: how is the cost of units calculated?

A

In same manner as weighted avg.

Except new weighted avg. cost calculated after each purchase

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56
Q

Moving avg. perpetual: the averGe cost is used to determine…

A

The cost of each unit sold prior to the next purchase

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57
Q

Weighted avg. unit cost equation

2) ending inventory equation for 600 units

A

Weighted average unit cost = Total units/total cost

2) Ending inventory = (600 units) x (weighted avg. unit cost)

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58
Q

FIFO First in First out

A

Assumption that goods are sold in chronological order purchased

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59
Q

Under FIFO, What will ending inventory consist of?

A

The last purchases made during the accounting period

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60
Q

LIFO (last in first out)

A

Assumption that goods are sold in chronological order purchased

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61
Q

Under LIFO, ending inventory will consist of…

A

The last purchases made during accounting period

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62
Q

Under FIFO periodic and FIFO perpetual, ending inventory is…

A

The same

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63
Q

Under LIFO Periodic and LIFO perpetual ending inventory is…

A

Different

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64
Q

Under FIFO, first in goes to…

2) remaining goes to…

A

COGS

2) ending inventory

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65
Q

LIFO has better matching on…

A

The income statement

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66
Q

Do freight in and interest expense go into COGS?

A

Freight in goes into COGS

interest has no effect

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67
Q

Under FIFO, with rising prices, ending inventory is…

A

Higher

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68
Q

LIFO liquidation

A

Break everything in inventory down to $0

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69
Q

Under LIFO, it’s best to make calculations with…

A

Periodic system

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70
Q

If you use periodic or perpetual systems under LIFO, what happens with your calculations for EI and COGS?

A

They are never the same for EI and COGS

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71
Q

Under perpetual, after every time you make sale you must…

A

Recomputed avg.

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72
Q

During a period with rising prices what happens to 1) ending inventory, 2) COGS, 3) Net Income 4) Taxes under FIFO?

A

1) EI is higher
2) COGS lower
3) NI higher
4) Taxes higher

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73
Q

During a period with rising prices what happens to 1) ending inventory, 2) COGS, 3) Net Income 4) Taxes under LIFO

A

1) EI Lower
2) COGS higher
3) NI lower
4) Taxes lower

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74
Q

Lower of Cost or Market:

A departure from the cost basis of pricing the inventory is required when the…

A

Utility of goods is no longer as great as its cost

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75
Q

Applying lower of cost or market rule:

Determine market

A

Market is replacement cost limited to ceiling and floor

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76
Q

Ceiling

A

Net realizable value (selling price less selling costs and costs
To complete)

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77
Q

Floor

A

Net realizable value less normal profit

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78
Q

If replace,net cost is greater than net realizable value, market equals…

A

Net realizable value

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79
Q

When does market = net realizable value - normal profit?

A

If replacement cost is: less than net realizable value minus normal
Profit

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80
Q

3 steps in applying the lower cost or market rule?

A

1 determine market
2 determine cost

3 select lower of cost or market

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81
Q

Floor and ceiling have bother to do with…

A

Cost (of step 2)

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82
Q

The floor limitation on market prevents recognition of…

A

More than normal profit in future periods (if market is less than cost)

83
Q

The ceiling limitation on market prevents recognition of…

A

A loss in future periods (if market is less an cost)

84
Q

Cost or market applied to individual items will always be as low as, and usually lower than…

A

Cost or market applied to inventory as a whole

85
Q

Cost or market applied to individual items will be the same as inventory as a whole, when…

A

All items at market or all items at cost are lower

86
Q

Once inventory has been written down, there can be no recovery from the write down until…

A

The units are sold

87
Q

Recoveries of prior writedowns for marketable securities are required to be taken into…

A

The income stream

88
Q

Methods of recording a write down in inventory, when market is less than cost at end of period

A

1 ending inventory established using market figure

2 or debts the inventory account for actual cost of goods on
Hand and make separate entry for market decline

89
Q

Recording write down: establish ending inventory using market figure

The difficulty with this procedure is that it…

A

Forces the loss to be included in COGS, thus overstating COGS
by amount of the loss

90
Q

Recording a writedown:

Under the method of Establishing the ending inventory using a market figure, the loss is not…

A

Separately disclosed

91
Q

Methods of recording a writedown:

An alternative treatment is to debit the inventory account for the actual cost (not market) of goods on hand and then make the following entry giving separate recognition to the market decline

A

Loss due to market decline. Xxx

Inventory. Xxx

92
Q

Purchase commitments (PC)

A

Result from legally enforceable contracts to purchase specific
Quantities of goods at fixed prices in the future

93
Q

Purchase commitments:

When there is a decline in market value below the contract price at the balance sheet date and the contracts are noncallable…

A

An unrealized loss has occurred and if material should be recorded
In period of decline

94
Q

Loss on purchase commitments journal entry

A

Estimated loss on PC. (excess of PC over mkt.)

Accrued loss on PC. (excess of PC over mkt.)

95
Q

Losses on Purchase Commitments:

If further declines in market value are estimated to occur before delivery is made, the amount of the loss to be accrued should…

2) the loss is take to…

A

Be increased to include this additional decline in market value

2) the income statement

96
Q

Losses on Purchase Commitments:

The accrued loss on PC is a is a…

A

Liability account and shown on the balance sheet

97
Q

Losses on Purchase Commitments:

What is the entry when goods are subsequently received?

A

Purchases. Xxx
Accrued loss on PC. XXX
Cash. Xxx

98
Q

Losses on Purchase Commitments:

If a partial or full recovery occurs before the inventory is received, the accrued loss account would be…

2) likewise, an income statement account…

A

Reduced by the amount of the recovery

2) recovery on loss of PC would be credited

99
Q

FIFO:

the goods from beginning inventory and the earliest purchases are assumed to be…

A

The goods sold first

100
Q

FIFO:

In a period of rising prices, COGS is made up of the earlier, lower priced goods resulting in…

2) the ending inventory is made up of more recent purchases and thus represents a…

A

A larger profit relative to LIFO

2) more current value relative to LIFO on the balance sheet

101
Q

The FIFO cost flow assumption may be used even when…

A

It does not match the physical flow of goods

102
Q

Whenever the FIFO method is used, the results of inventory and COGS are…

A

The same at the end of the period under either a perpetual or
Periodic system

103
Q

LIFO (last in first out)

A

Under this cost flow method, the most recent purchases are
assumed to be the first goods sold

Ending inventory is assumed to be composed of the oldest
Goods

104
Q

Under LIFO, the COGS contains…

A

Relatively current costs (resulting in matching current costs
With sales)

105
Q

The LIFO cost flow assumption usually does not parallel…

A

The physical flow of goods

106
Q

LIFO is widely adopted because it is acceptable for…

A

Tax purposes and during periods of rising prices it reduces tax
Liability due to lower reported income + higher COGS

107
Q

LIFO smooths out fluctuations in the income stream relative to FIFO because it…

A

Matches current costs with current revenues

108
Q

The primary disadvantage of LIFO is that it results in…

2) what is this generally know as?

A

Large profits if inventory decreases, because earlier lower valued
layers are included in COGS

2) LIFO liquidation

109
Q

Another disadvantage of LIFO is the cost involved in…

A

Maintaining separate LIFO records for each item in inventory

110
Q

If LIFO is used for tax purposes it must be used for…

2) what is this rule known as?

A

Financial reporting purposes

2) LIFO conformity rule

111
Q

LIFO:

Under current tax law inventory layers may be added using the…3

A 
1 earliest acquisition costs
Or
2 weighted avg, cost for period 
Or
3 latest acquisition costs
112
Q

On the CPA exam for LIFO, use the earliest acquisition costs unless you are instructed to use one of the other…

A

Alternatives

113
Q

LIFO:

When a company uses LIFO for external reporting purposes and another inventory method for internal purposes…

A

A LIFO Reserve account is used to reduce Inventory from

Internal valuation to LIFO valuation

114
Q

LIFO Reserve 2

A

1 contra account To inventory

2 adjusted up or down at year end with a corresponding increase
Or decrease in COGS

115
Q

Dollar-value LIFO is LIFO applied to…

A

Pools of inventory items rather than to individual items

116
Q

Costs of keeping inventory records is less under which form of LIFO?

A

Less under dollar value LIFO, than compared to unit LIFO

117
Q

LIFO conformity rule also applies to…

A

Dollar value LIFO

118
Q

LIFO conformity rule:

Companies using dollar value LIFO define their LIFO pools so as to…

A

Conform with IRS regulations

119
Q

Dollar value LIFO:

Under IRS regulations, a LIFO pool can contain either…2

A

1 all inventory items for a natural business unit
Or
2 multiple pool approach can be elected

120
Q

Multiple pool approach election (dollar value LIFO)

A

Business can group similarly used inventory items into several
Groups or pools

121
Q

Dollar value LIFO:

The advantage of using inventory pools is that…

A

Involuntary liquidation of LIFO layers is less likely to occur

122
Q

Conversing price index equation

A

Conversion price index =

EI at end of year prices)/(EI at base year prices

123
Q

RC

A

Replacement cost

124
Q

4 steps of using dollar value LIFO

A

1 convert nominal EI to base year EI (divide)
2 change is a layer at base year
3 convert base year layers to nominal (multiply)
4 add them all up

125
Q

Gross profit:

Ending inventory is estimated by using…

A

Gross profit percentage to convert sales to cost of goods

presumed sold

126
Q

Gross profit:

Since ending inventory is only estimated, the gross method is…

A

Not acceptable for either tax or annual financial reporting purposes

127
Q

What are 3 major uses of gross profit?

A

1 estimate ending inventory for internal use
2 use in interim financial statements

3 establishing amount of loss due to destruction of inventory by
Fire, flood or other catastrophes

128
Q

Standard costs

A

Predetermined costs in a cost accounting system

Generally used for control purposes

129
Q

Standard costs:

Inventory may be costed at standard only if…

A

Variances are reasonable (not large)

130
Q

Standard costs:

Large debit (unfavorable) variances would indicate…

A

Inventory and cost of sales were undervalued

131
Q

Standard costs:

Large credit (favorable) variances would indicate…

A

Inventory is over valued

132
Q

Direct variable costing is not…

A

An acceptable method for valuing inventory

133
Q

Directing costing considers only…

2) and fixed production costs as…

A

Variable costs as product costs

2) period costs

134
Q

In contrast to direct variable costing, absorption costing considers…

A

Both variable and fixed manufacturing costs as product costs

135
Q

2 items to include in inventory

A

1 Goods shipped FOB shipping point until received by carrier

2 goods shipped FOB destination until delivered to customer

136
Q

Items to include in inventory:

Goods shipped FOB shipping point, which are in transit should be included in the inventory of the buyer since…

A

Title passes to the buyer when the carrier receives the goods

137
Q

Items to be included in inventory:

Goods shipped FOB destination should be included in inventory of seller until goods are received by the buyer since…

A

Title passes to the buyer when the goods are received at their
Final destination

138
Q

Consignors

A

Consign their goods to consignees, who are sales agents of

Consignors

139
Q

Consigned goods remain property of…

A

The consignor until they are sold

140
Q

Consignments:

Any unsold goods (including a proportionate share of freight costs incurred in shipping the goods to the consignees) must be…

A

Included in the consignor’s inventory

141
Q

Consignment sales revenue should be recognized by…

A

The consignor when the consignee sells the consigned goods

To the ultimate customer

142
Q

No revenue is recognized at the time the consignor…

A

Ships the goods to the consignee

143
Q

Sales commission made by the consignee would be reported as…

2) it would not be…

A

A selling expenses by the consignor

2) not be netted against sales revenue recognized by the consignor

144
Q

2 important ratios that relate to inventory

A

1 inventory turnover

2 number of days’ supply in average inventory

145
Q

The inventory turnover ratio measures…

A

The number of times inventory was sold

and reflects inventory order and investment policies

146
Q

Inventory turnover calculation

A

Inventory turnover = (COGS)/(avg. inventory)

147
Q

Average inventory calculation

A

Average inventory = (BI + EI)/2

148
Q

Number of days inventory is held…

2) this ratio reflects on…

A

Before sale

2) efficiency of inventory policies

149
Q

Number of days’ supply in average inventory calculation

A

Number of days’ supply in average inventory =

365/(inventory turnover)

150
Q

The faster the inventory turnover…

A

The better (unless the company can’t restock inventory fast enough)

151
Q

FOB shipping vs FOB destination:

If not mentioned on CPA exam, assume…

A

FOB shipping

152
Q

Long term contracts are accounted for by which 2 methods?

A

1 completed contract method

2 percentage of completion method

153
Q

Completed contract method

A

Recognition of contract revenue and profit at contract completion

154
Q

Completed contract method:

All related costs are…

A

Deferred until completion and then matched to revenues

155
Q

The completed contract method is preferable in circumstances in which…

A

Estimates can’t meet the criteria for reasonable dependability

156
Q

1 contracts executed by the parties normally include provisions that clearly specify the enforceable rights regarding foods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement
2 the buyer can be expected to satisfy obligations under contract
3 the contractor can be expected to perform contractual obligation

If any of the 3 criteria above aren’t met…

A

The completed contract method must be used

157
Q

The advantage of the completed contract method is that it is…

A

It is based on results not estimates

158
Q

2 Disadvantages of completed contract method

A

1 Current performance is not reflected

2 income recognition may be irregular

159
Q

Percentage completion method

A

Recognition of contract revenue and profit during construction
Based on expected total profit

And estimated progress towards completion in current period

160
Q

Under the percentage completion method, all related costs are…

A

Recognized in the period in which they occur

161
Q

The use of the percentage of completion method depends on The ability to make reasonably dependable estimates of…3

A

1 contract Revenues
2 contract costs
3 extent of progress towards completion

162
Q

Percentage of completion method:

For entities which customarily operate under contractual arrangements and for whom contracting represents a significant part of their operations, the presumption is that…

A

They have the ability to make estimates that are sufficiently
dependable to justify use of percentage completion method

163
Q

Percentage completion method is preferable when all of the following 3 conditions exist:

A

1 contracts executed by parties normally include provisions that
Clearly specify the enforceable rights regarding goods or services
To be provided and received by the parties, the consideration to
Be exchanged and the manner and settlement of terms
2 the buyer can be expected to satisfy obligations under the
contract
3 the contractor can be expected to perform contractual obligation

164
Q

The advantage of the percentage of completion is…

A

Periodic recognition of income

165
Q

The disadvantage of the percentage completion method is…

A

Dependence on estimates

166
Q

In practice, various procedures are used to measure the extent of progress toward completion under the percentage completion method, but the must widely used one is…

A

Cost to cost

167
Q

Percentage of completion method:

Cost to cost is based on…

A

The assumed relationship between a unit of input and productivity

168
Q

Percentage of completion method:

Under cost to cost, either revenue and/or profit to be recognized in the current period can be determined by the following formula

A

Revenue (profit) =
[(cost to date/total expected cost based on latest estimate)
X contract price AKA expected profit]
- Revenue (profit) recognized in previous periods

169
Q

Percentage of completion method:

Revenue and profit are 2 different terms. Profit is calculated by…

2) revenue is the…

A

Subtracting construction expenses from revenue

2) contract price

170
Q

Ledger account titles are unique to…

A

Long term construction contracts

171
Q

Long term construction contracts:

In practice, there are numerous account titles for the same item: give example

A

Billings on LT contracts

vs. Partial billings on construction in progress

172
Q

Long term construction contracts:

In practice there are various methodologies for journalizing the same transactions: example

A

Separate revenue and expense control accounts in lieu of

“Income on LT contracts account”

173
Q

Completed contract method means recognize no profit until…

A

Contract completed

174
Q

Calculation from Yaeger Video for Percentage completion method

2) how estimated GP is calculated

A

Profit - previous year’s profit recognized =
(Total costs incurred to date/total estimated costs to complete) x GP

2) contract price - total est. cost to complete = est. GP

175
Q

Billings on contract

A

Contra account to construction in process

176
Q

LT contracts:

Journal entry 4 is…

A

Different under completed contract method vs. Percentage

Completion method

177
Q

Complete contract vs. Percentage completion method:

Income recognition

A

Timing of income recognition differs

178
Q

Complete contract vs. Percentage completion method:

Completed contract method never includes…

A

Gross profit

179
Q

LT contracts:

If billings on contracts is greater than construction in progress, how is it recognized?

A

As a current liability

180
Q

LT construction contracts:

Losses

A

Must recognize loss in full when you think there will be a loss
On both completed contract and percentage completion methods

181
Q

Journal entry for completed contract method and percentage completion method for: first entry costs of construction

A

Construction in process inventory. Xxx

Cash/payables. Xxx

182
Q

Costs of construction journal entry under the completed contract method may include…

A

A reasonable allocation of general and administrative (G&A)

expenses for periods prior to completion

183
Q

Journal entry for completed contract method and percentage completion method for: second entry progress billings

A

A/R. Xxx

Billings on contracts. Xxx

184
Q

Journal entry for completed contract method and percentage completion method for: 3rd entry collections on billings

A

Cash. Xxx

A/R. Xxx

185
Q

Under the completed contract method the 4th journal entry of recognition of income when there is still more construction…

A

No income is recognized until completion

186
Q

Under the percentage completion method the 4th journal entry of recognition of income…

A

Construction in process inventory. Xxx

Income on construction Xxx

187
Q

In the 4th journal entry for recognition of income, what account is income on construction closed to?

A

Closed to income summary

188
Q

4th journal entry, recognition of income for both completed contract and percentage completion methods in final year

A

Billings on contracts. Xxx
Construction in process inventory. Xxx
Income on construction. Xxx

189
Q

Alternative final 4th journal entry for percentage completion method

A

Construction in process inventory. Xxx
Billings on contracts. Xxx
Construction in process inventory Xxx
Income on construction. Xxx

190
Q

IFRS:

IFRS accounting for inventory differs from US GAAP in what 3 areas?

A

1 cost flow assumption

2 valuation of inventory at year end

3 capitalization of interest

191
Q

With IFRS, the LIFO cost flow assumption is…

A

Not permissible

192
Q

IFRS:

Specific ID is required for inventory of goods that are…2

A

1 Not interchangeable

2 goods that are produced and segregated for specific projects

193
Q

IFRS:

FIFO and weighted average method are…

A

Acceptable methods under IFRS

194
Q

IFRS:

The retail method may…

A

Only be used for certain industries

195
Q

IFRS:

The gross profit method can be used to…

A

Estimate ending inventory when a physical count is not possible

196
Q

IFRS:

Inventories are carried at…

A

Lower cost or net realizable value (LCNRV)

197
Q

IFRS:

An exception to the lower cost or net realizable value (LCNRV) rule applies to…

A 
Agricultural inventories (biological assets) which are carried at
Fair value less costs to sell at point of harvest
198
Q

In US GAAP! what is used to value inventories?

A

Lower of cost or market (LCM)

199
Q

Under US GAAP, market is defined as…

A

Replacement cost, subject to ceiling and floor

200
Q

Under GAAP, ceiling is…

2) and floor is…

A

Net realizable value (NRV)

2) NRV less normal profit margin

201
Q

Under GAAP, once inventory is written down…

A

A loss may not be recovered

202
Q

IFRS VS GAAPS: valuing inventories

A

GAAP: NRV is calculated as estimated selling price less estimated selling price less estimated costs of completion of sale

IFRS: values inventory at lower of cost or net realizable value
(LCNRV)

203
Q

Under IFRS, LCNRV is applied on…

2) however, under IFRS if there are groups of items that have similar characteristics, they may be grouped for…

A

An item by item basis

2) the application of LCNRV

204
Q

If LCM, were applied under US standards, additional information would be need, specifically US GAAP would require…

A

Replacement cost and normal profit margin in order to arrive at
Ceiling and floor

205
Q

IFRS VS GAAP:

Rules for capitalization of interest (1 for GAAP, 2 for IFRS)

A

GAAP: no capitalization of interest for inventories routinely manufactured/produced on repetitive basis

IFRS: 1 doesn’t allow interest or financing costs to be capitalized
For inventory if it is paid under normal credit terms
2 IFRS allows interest costs to be capitalized if there is a lengthy
Production period to prepare goods for sale

Yaeger FAR (59 decks)

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