Financial Reporting & Analysis - Inventory Flashcards
IFRS Cost Methods (3)
1) Specific identification
2) Weighted average cost
3) FIFO
GAAP Cost Methods (4)
All of IFRS + LIFO
Does IFRS or GAAP allow LIFO?
GAAP
Cost of inventory includes
Cost of purchase + conversion costs + costs incurred bringing inventories to present location and condition
Conversion costs
Direct costs (labor & direct overhead). Show up on income statement when item sold.
Inventory costs exclude
1) Abnormal costs from wasted materials/labor
2) Storage (unless required in production)
3) Administrative and selling costs
Inventory costs include storage?
Only if required in production!
Cost method: specific identification
1) Often for items not ordinarily interchangeable
2) Often for expensive identifiable objects (gemstones)
3) ties costs to sales
Perpetual inventory system
Sales are recorded immediately as they occur
Periodic inventory
Inventory is reviewed periodically and other numbers are backed into assuming sales
Periodic vs perpetual
LIFO and WAC will be different because perpetual has more up to date inventory costs, whereas periodic relies on an old inventory account (misses most recent purchases/sales)
IFRS inventory value
1) Lower of cost or net realizable value
2) Realizable value = (price in normal business ops - costs to get inventory ready for sale)
GAAP inventory value
1) Lower of cost or market value (subject to upper and lower limits)
Inventory write down
Loss that shows up in net income during write-down period
Inventory write down reversal
Reduces cost of goods sold and therefore increase net income in period where reversal occurs
