Inventory

Question 1

The lower of cost or market rule for inventories may be applied to total inventory, groups of similiar items, or to each item. Which application results in the lowest inventory amount?

Answer 1

Item by item basis as the lower amount for each item is selected

Question 2

What is the impact of purchases and ending inventory to COGS, gross profit, net income, and R/E?

Answer 2

Beginning inventory
+ Purchases
====================
= Good available for sale
- Ending inventory
====================
= COGS

Increases or decreases to the amounts above the goods available for sale line will have the same effect to COGS.

Increases or decreases to ending inventory will have the opposive effect on COGS

Increases to COGS decreases NI and R/E

Decreases to COGS increases NI and R/E