Inventory Flashcards
What is retail inventory?
Finished goods for resale
When does title pass from the seller to the buyer of goods?
In the manner and under the conditions explicitly agreed upon by the parties
If no conditions are agreed upon for passing of title, when is the title passed?
At the time and place where the seller’s performance regarding delivery of goods is complete
When does title pass in FOB Shipping Point?
When the seller delivers the goods to a common carrier
When does title pass in FOB Destination?
When the buyer receives the goods from the common carrier
GAAP requires that inventory be stated at?
Cost
What are the 2 exceptions for the departure of the cost basis?
Lower of cost or market and precious metals and farm products
Gold, silver, and other precious metals, and meat and some agricultural products are valued at?
Net realizable value
What is the formula for Net realizable value?
Net selling price - costs of disposal
What is the purpose of reducing inventory to the lower of cost or market?
To show the probable loss sustained in the period in which the loss occurred
What principle is for showing the probable loss sustained?
Conservatism
What principle is showing the loss in the period incurred?
Matching
What does the term market mean in the phrase lower of cost or market?
Current replacement cost
What is the rule regarding market cost?
Current replacement cost shouldn’t exceed net realizeable value or fall below net realizable value reduced by normal profit margin
What is the market ceiling?
Net realizable value
What is the market floor?
Net realizable value - normal profit margin
Under US GAAP, are reversals of inventory write-downs prohibited?
Yes
IFRS require inventory to be reported at?
The lower of cost or net realizable value
What is the journal entry to record the write-down to a separate account?
Dr. Inventory loss due to decline in market value, Cr. Inventory
What are the 2 types of inventory systems used to count inventory?
Periodic and perpetual inventory systems
What is the formula for Cost of Goods Sold in the periodic inventory system?
Beginning inventory + Purchases = Cost of Goods Available for sale - Ending inventory = Cost of goods sold
When is the inventory record updated in the perpetual inventory system?
Each item of inventory is updated for each purchase and each sale as they occur
What cost flow assumption method is prohibited under IFRS?
LIFO
In the periods of rising prices, the FIFO method results in?
Highest ending inventory, lowest costs of goods sold, and the highest net income
How is the weighted average determined?
Dividing the total costs of inventory available by the total number of units of inventory avialable
How is the moving average method calculated?
Computes the weighted average cost after each purchase by dividing the total cost of inventory available after each purchase by the total units available after each purchase
In the periods of rising prices, the LIFO method results in?
Lowest ending inventory, the highest costs of goods sold, and the lowest net income
What is the formula for price index?
Ending inventory at current year cost / Ending inventory at base year cost
