7 Inventories

Question 1

To compute price index for dollar-value LIFO inventory method on inventory layers

Answer 1

ending inventory at current year cost / ending inventory at base year cost

Question 2

If a company enters into a purchase commitment to buy inventory is it recorded at the time of the agreement?

Answer 2

No

Question 3

If a company enters into a purchase commitment to buy inventory, and the current market value of the inventory is less than the fixed purchase price, how is the loss accounted for?

Answer 3

The nature of the contract is described in a note to the financial statements and a loss is recognized in the income statement and a liability for the accrued loss is recognized in the balance sheet.