F4 - Inventory.

Question 1

what are 2 types of inventory system?

Answer 1

1. periodic inventory - USE Purchase, we count inventory in the end of accounting period.
   *** formula
   Beginning inventory
   + Purchase
   = COGS available for sale
   - Ending inventory(count)
   = COGS.
2. Perprtual inventory system -
   No Purchase. keep updating buy and sale total balance and won’t wait until the end of period.

Question 2

*** what is the “valuation of inventory”?

Answer 2

GAAP required counting inventory as COST.
There are exceptions:
1. lower of cost or market: GAAP, if you think your sale witth be a loss, then use this method.
2. Metal and farm goods’s inventory are counting as NRV (net realizable value), selling price minus cost of disposable.

Question 3

explain more about “lower of cost or market”?

Answer 3

the purpose of reducing inventory to the lower of cost or market is to show the probable loss sustained (conservatism) in the period in which the loss occured (matching principle). the lower-of-cost-or-market principle may be apply to single item (most conservatism)

Question 4

*** Under GAAP, the term “market” in “lower of cost or market” generally means?

Answer 4

The current replacement cost (whether by purchase or reproduction), the current replacement cost does not excceed NRV(the market ceiing) or fall below NRV reduced by normal profit margin (market floor).

Question 5

what is the formula for “cost of available good for sale”?

Answer 5

beginning inventory
+ purchase
= COGAFS.

Question 6

what’s the formula of “COGS”?

Answer 6

COGAFS(cost of good available for sale)
- EI(ending inventory)
= COGS.

Question 7

under GAAP, how to treat cost?

Answer 7

if you think there will be a profit, then you use cost. otherwise, use lower cost of the market method.

Question 8

under ‘lower cost of the market” (when company don’t think they will make profit), what’s the formula of NRV(ceiling price) and Floor price?

Answer 8

under us GAAP, lower cost of market price is “middle value”.
NRV = selling price - cost = NRV (ceiling)
NRV (ceiling) - profit = floor price.
profit = selling price x profit margin.
note: if the lost is material, then you can debt loss and credit inventory, otherwise, just treat it as increasing cost of inventory.

Question 9

US GAAP allows LIFO, how about IFRS?

Answer 9

IFRS doesn’t allow LIFO.

Question 10

explain “FOB” shipping point?

Answer 10

FOB = free on board. (the title belongs to buyer and buyers pay shipping when good in in the truck).

Question 11

what’s “FOB” shipping destination?

Answer 11

seller pays. title still belong to sellers even the goods is in truck . title will pass to buyer when buyer receive the good.