2 Measurement, Valuation, and Disclosure: Assets -- Short-Term Items Flashcards
Under GAAP and IFRS, a reversal of a write-down of inventory is prohibited in subsequent periods.
True or False?
False.
Under GAAP, a reversal of a write-down of inventory is prohibited in subsequent periods. Under IFRS, however, a write-down may be reversed but not above original cost.
Although the retail method of estimating inventory can help simplify the physical inventory count at year end, it is not permitted for external reporting under GAAP.
True or False?
False.
The retail inventory method is used for
1. Interim and annual financial reporting in accordance with GAAP.
2. Federal income tax purposes.
3. Verifying year-end inventory and cost of goods sold data, e.g., as an analytical procedure by an independent auditor.
Under GAAP, inventory accounted for using FIFO is measured at the lower of cost or net realizable value.
True or False?
True
Under GAAP, inventory accounted for using FIFO is measured at the lower of cost or net realizable value. In contrast, inventory accounted for using LIFO is measured at the lower of cost or market.
3: Under the principle of lower of cost or market (LCM), market price of inventory must not be greater than a ceiling equal to its fair value reduced by an allowance for an approximately normal profit margin.
True or False?
False.
Market is the current cost to replace inventory, subject to certain limitations. Market should not exceed a ceiling equal to net realizable value (NRV) and should not be less than a floor equal to NRV reduced by an allowance for an approximately normal profit margin.
The floor is calculated as…?
Floor is equal to net realizable value reduced by normal profit margin.
The lower of cost or market rule is applied the same under GAAP and IFRS.
True or False?
False.
Under IFRS, inventories are measured at the lower of cost or net realizable value (NRV).
