2C - Inventory Flashcards
How to calculate Net Realizable Value? i.e. ceiling
Selling price less selling costs
How to calculate the floor?
NRV less normal profit margin
How to calculate normal profit margin?
Cost times the profit margin %
How to calculate inventory under IFRS?
Lower of cost or NRV (selling price less selling costs)
What is included in inventory costs?
Any expense in bringing the goods to their required condition and location. i.e. freight in, handling, insurance
When applying LCM to individual items, do you get a higher or lower inventory amount?
Lower!
How do you calculate the cost to retail percentage?
Cost / Retail cost + net mark ups
How do you calculate the cost of sales using the cost to retail percentage?
Cost - (Cost to Retail % * Retail Ending Inventory)
How does a reduction of cash used to pay off all A/P affect both the current and quick ratio?
Both ratios will increase!
Who is the consignor?
The person who sends out their inventory to be sold by someone else (consignee)
Who is the consignee?
The person who sells merchandise on behalf of someone else (consignor)
When adopting the dollar value LIFO, you will need to restate ending year retail prices to the base year price. How do you do that?
Take your retail ending inventory and divide it by the increase in price level for the current year (i.e. 600k / 1.10)
Once you restate the retail to base year, how to do you get the cost ending inventory?
Take the difference between EI and BI of retail - X that by the increase in price level and X by the cost to retail ratio. Add it to the Cost BI.
The retail inventory method includes what in the calculation of both cost and retail amounts of goods available for sale?
Purchase discounts
If EI is overstated, what is the effect on current assets and gross profit?
EI is an asset. So if that is overstated, current assets are overstated as well. EI being over means COGS is under, thus a higher gross profit
