FAR-2.1: Inventory Flashcards
what should inventory be valued at
lower of cost or market
what is included in cost of inventory?
- warehousing costs prior to sale
- insurance, repackaging, modifications
- freight-in paid by the buyer
- transportation costs paid by the seller on consignment arrangements
- DO NOT include abnormal costs for idle factory expense, unallocated fixed overhead costs, excessive spoilage, double freight, and rehandling costs (these are expensed immediately)
when does title transfer for FOB shipping point?
when the goods are given to a carrier (shipped)
included in seller’s books until shipped. if in transit at year end, the buyer owns it
when does title transfer for FOB destination?
when the goods are received by (tendered to) the buyer Included in seller’s books until received by buyer
does the consignor or consignee have the inventory on the balance sheet?
consignor has inventory on balance sheet even though consignee has possession. Consignee is just selling inventory on behalf of consignor
types of inventory costing methods
- specific identification
- FIFO
- LIFO
- moving avg
- weighted avg
does FIFO better represent actual costs on balance sheet or income statement
balance sheet
does LIFO better represent actual costs on balance sheet or income statement
Income statement
under perpetual, what inventory method would have the same ending inventory, FIFO or LIFO?
FIFO
in periods of inflation, which will have a higher COGS (and lower earnings/taxes), FIFO or LIFO?
LIFO
IFRS - which inventory valuation method is not allowed under IFRS?
LIFO - because it always reduces taxes in periods of inflation which exists in almost all countries
what are the 3 ways to get the price index for dollar value LIFO?
- simplified (given)
- double extension (extend back to base year)
- link chain (cumulative index, compare with previous year)
how do you determine market cost under US GAAP?
take the middle of:
ceiling = net realizable value (selling price - disposal costs)
floor = NRV - normal profit margin
replacement cost = purchase or reproduction
use the middle of the 3 for the market and compare to cost
can you recover inventory losses under US GAAP?
no
can you recover inventory losses under IFRS?
yes
inventory estimation - gross profit method. how is it done?
beginning inventory \+ purchases = goods available for sale - ??? ending inventory = cost of goods sold
COGS estimated at xx% of sales
so ending inventory = goods avail for sale - (sales * xx%)
inventory estimation - retail inventory method. are net markups or net markdowns or both included in the cost to retail percentage?
only net markups
inventory estimation - retail inventory method. what is the formula/method for deriving ending inventory at cost
beginning inventory \+ purchases \+ freight in \+ Net Markups = goods available for sale (both cost and retail) calculate cost ratio (cost / retail)
goods avail - Net Markdowns = sales price of goods avail for sale - losses - sales @ retail = ending inventory @ retail x cost ratio = ending inventory at cost
IFRS - what inventory valuation method is not allowed
LIFO
IFRS - what inventory method is required for inventory of goods that are not interchangeable or goods that are produced and segregated for specific projects?
specific ID
IFRS - Under US GAAP, inventory is valued at the lower of cost or market. What is the valuation method under IFRS?
lower of (original) cost or Net Realizable Value (LCNRV)
IFRS - how are biological assets and agricultural produce measured and valued?
biological assets - fair value minus estimated sales costs
agricultural produce - fair value minus costs to sell at harvest
IFRS - can interest be capitalized on items that are routinely manufactured?
yes, if there is a lengthy production period to prepare the goods for sale
when accounting for a long-term construction contract using percentage of completion method, the income recognized goes to what account?
Construction in progress
