Chapter 4 Inventories Flashcards
Under US GAAP during periods of inflation, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory valuation methods?
FIFO periodic and FIFO perpetual will always result in the same dollar valuation of ending inventory. LIFO perpetual versus periodic will not?
How is inventory valued under GAAP?
Under GAAP inventory is valued at the lower of cost or market. Market is defined as the medium value of the market ceiling, market floor, and replacement cost.
How is inventory valued IFRS?
Under IFRS, inventory is valued at the lower of cost or net realizable value. Net realizable value is equal to the net selling price less the costs to complete and dispose, or market ceiling under GAAP.
How is perpetual LIFO determined?
It is calculated as you go.
How is periodic LIFO determined?
At the end of the period you calculate inventory using the oldest costs.
How do you calculate cost of goods sold.
Beginning + Purchases - discounts + freight in - ending inventory
How are consigned goods treated?
As inventory, so any transportation to consignees is added to cost of inventory.
Which inventory method requires estimates of price-level changes for specific inventories?
Dollar-value LIFO method adjusts inventory retail prices and ending inventory costs for price-level changes.
What would be the entry to adjust average cost to LIFO?
Debit Cost of goods sold and credit LIFO reserve.
Is insurance costs included on cost of inventory?
YES
Which inventory method is prohibited by IFRS?
LIFO
What does an understated cost of goods sold lead to?
an overstatement of in net income leading to RE
