Concept CH 7 Flashcards
Cost of Inv Purchases Include
Price paid (net of discounts)
Import duties & unrecovered taxes
handling, freight-in, insurance
Lower of Cost of Market (LCM) LIFO/Retail
Market should not exceed ceiling - NRV
Market should not be less than floor - NRV - GP
Net Realizable Value (NRV) FIFO/AVG-COST
Sales Price - Cost to Complete/Selling Cost
Inventory Errors
Affects
- Current Assets
- Working Capital
- COGS
- Net Income
- Equity
Purchase Commitment Loss
Loss recognized on non-cancelable unhedged purch if market price < commit price
Ending Inventory Overstated Effects 2 periods CY and next year
CY COGS understated NI Overstated RE Overstated NY COGS Overstated NI Understated Beg Overstated
Cost of Sales equal
beginning inventory, plus purchases, plus additional costs , minus ending inventory
FOB Destination
Means title and risk of loss pas to buyer when seller makes tender of delivery at the destination
Consigned goods
are included in the consignors inventory
Sales equal
Ending AR + Collections - Beginning AR
LIFO assumes
Newest inventory sold first
LCM retail method includes
markups but not markdowns
GAS
BI + PUR = GAS = EI + COGS
Dollar-value LIFO
Determines changes in inventory in terms of dollars constant purchasing power.
Inventory Method yielding same inventory measurement and COGS under perpetual or period
FIFO
In period of rising prices which method provides best matching of expenses against revenues
LIFO
Weighted Avg is used for
Periodic system
Moving Avg is used
Perpetual
In a period falling prices
FIFO will yield the highest COGS
Under IFRS inventory is measured at
Lower of cost or NRV
Reversal of adjustment in subsequent period
Allowed under IFRS, not allowed under GAAP
Step 1 in Dollar-Value LIFO Measurement
Accumulated YE Inventory balances at base-year and current year cost. CY Cost are divided by BY cost to arrive at price index
Step 2 In Dollar-Value LIFO Measurement
Each layer stated at base year cost is multiplied by price index
Cost-retail method
includes both markup and markdowns
A cost method that adjust inventory layers for price level changes
Dollar value LIFO retail
Cost-retail ratio based on goods available for sale that includes markups and markdowns
Average Cost
Cost-retail ratio includes inventories and markups but not markdowns
Lower of average cost or market
Cost-retail ratio includes markups but excludes inventories and markdowns
FIFO lower of cost or market
Cost-retail ratio based on adjusted purchases and calculated for each annual layer
LIFO retail
The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale?
Purchase Returns
Sales revenue is only recognized for
the amount of consideration to which the company expects to be entitled. Thus, no sales are recorded to items expected to be returned
LCM Measurement NRV and NRV - Gross Profit
The maximum is net realizable value, and the minimum is net realizable value - gross profit
Overstated inventory
Understated COGS overstated income year 1
Overstated COGS and understated income year 2
Understated Inventory
Overstated COGS understated income year 1
Understated COGS overstated income year 2
LCM - Market
should not exceed ceiling or be less than floor
FIFO Cost
Most straight forward computed for ADJ purchases not GAS. Markups added and markdowns subtracted from purchases at retail to determine ratio
To find change from FIFO to LIFO
(Inv Y1 FIFO - Inv Y2 FIFO) - (Inv Y1 LIFO - Inv Y2 LIFO) = Net change
