Chapter 18 LCNRV Flashcards
NRV =
Estimated Selling Price in the ordinary course of business - Estimated Cost of Completion - Estimated Cost of Disposal
The cost of inventories may not be recoverable if the inventories are ___, if they have become wholly/partially ___, if their selling pries have ____, or if the estimated cost of completion or the estimated cost of disposal has ____
damaged, obsolete, declined, increased
The practice of writing inventories down below cost to net realizable value is consistent with the view that ________
assets shall not be carried in excess of amoutns expected to be realized from their sale or use
Inventories are usually written down to NRV on an ____ bases
item by item or individual
It is inappropriate to write down inventories based on a ____ of inventories. (Finished goods/Work in Progress(WIP)/Raw Materials/Inventories in a particular industry or geographical segment)
classifcation
T/F: If the finished products in which the materials and other supplies held for use in production will be incorporated in are expected to be sold at or above cost, the said materials and other supplies are written down below cost.
False. If that’s the case, they aren’t written down below cost.
T/F: When a decline in the price of materials indicates that the cost of the finished products > NRV, the materials are written down to NRV.
True.
T/F: When a decline in the price of materials indicates that the cost of the finished products > NRV, the replacement cost of materials may be the best evidence of their NRV.
True.
Is there an accounting problem if the cost
None. Because the inventory is stated at cost and the increase in value is not recognized.
If the NRV
NRV
The Direct Method is also known as ____ because any loss on inventory writedown is not accounted for separately but “buried” in the ____
cost of goods sold method, cost of goods sold
Under the allowance method, the inventory is recorded at ___ and any loss on inventory writedown is accounted for ____
cost, separately
The ___ method is also known as “loss method” because a loss account “loss on inventory writedown” is debited and a valuation account “_____” is credited.
Allowance, Allowance for inventory writedown
In subsequent years, the “allowance for inventory writedown” account is adjusted upward or downward depending on the difference between the cost and NRV of the inventory at ____
year-end
If the required allowance for inventory writedown increases, an additional ___ is recognized.
loss
If the required allowance decreases a ____ is recorded. However, the ___ is limited only to the extent of the ____
gain on reversal of inventory writedown, gain, allowance balance
Preferably the ___ method is used in order that the effects of writedown and reversal of writedown can be clearly identified.
allowance
T/F: PAS 2, paragraph 36, requires disclosure of the amount of any inventory writedown and the amount of any reversal of inventory writedown.
True.
The gain on reversal of inventory writedown is presented as a ____ from ____.
deduction, CGS
The amount of inventory recognized as an expense in the period in which the reversal occurs is also known as
cost of goods sold
T/F: The CGS in the direct and allowance method are different.
False. They must be the same.
Wrt inventories, the financial statements shall disclose the following:
- Accounting Policies adopted in measuring inventories, including the cost formula used, 2. Total Carrying Amount of inventories and the carrying amount in classifications appropriate to the entity (Merchandise, Production supplies, WIP, Finished Goods, etc.), 3. Carrying Amount of inventories carried at FVLCTS, 4. The amount of inventories recognized as an expense during the period, 5. The amount of any writedown of inventories recognized as an expense during the period, 6. The amount of reversal of writedown that is recognized as income, 7. The circumstances or events that led to reversal of a writedown of inventories, 8. The Carrying Amount of Inventories Pledged as Security for liabilities
PAS 2, paragraph 4, provides that inventories of agricultural, forest, and mineral products are measured at ___ at certain stages of production
NRV
Agricultural crops that have been harvested or mineral products that have been extracted are measured at NRV when ____ and ___
a sale is assured under a forward contract or gov’t guarantee, a homogeneous market exists and there is a negligible risk of failure to sell
PAS 2, paragraph 3, provides that commodities of broker-traders are measured at ___
FVLCTS
