Inventory Flashcards
Inventory
What is the formula for Days Sales in Inventory
Days’ sales in inventory = (Average inventory ÷ Cost of goods sold) × Working days per year:
Inventory
Define Dollar Value LIFO
Dollar-value LIFO is a short-cut cost flow method that approximates the results of LIFO, which measures inventory layers in terms of dollars rather than physical units. Dollar-value LIFO requires the use of a price index and the concept of a base year (the year in which dollar-value LIFO is adopted).
Inventory
True or False
For qualifying assets being constructed for an entity’s own use, interest cost to be capitalized should be equal to the less of (a) the avoidable interest (based on the weighted-average amount of accumulated expenditures), or (b) the actual interest cost incurred.
True
For qualifying assets being constructed for an entity’s own use, FASB ASC 835-20-30-2 requires interest cost to be capitalized equal to the less of (a) the avoidable interest (based on the weighted-average amount of accumulated expenditures), or (b) the actual interest cost incurred.
Inventory
Describe the retail method when valuing inventory
The retail method is a method of valuing inventory utilizing retail prices. Inventory at retail is converted to cost (using any of the cost flow assumptions, LIFO, FIFO, average cost) or to the lower of cost or market based on the cost-to-retail ratio. The method requires additional information in addition to units and unit costs: beginning inventory and purchases at retail and adjustments to original sales price, such as markups, markdowns, and cancellations of markups and markdowns.
Inventory
Describe the method for Dollar Value LIFO
To add an increase, a new layer, using dollar-value LIFO (last in, first out), two items are needed: the total real increase (computed using base-year costs) and the total increase in price level to date so far. Once both of these amounts are acquired, multiply them and add the product to the beginning-year inventory total.
Inventory
What is the idea behind Lower of Cost or Market (LCM)
Market cannot:
•exceed Net realizable value (Estimated selling price - Disposal costs)
•be less than Net realizable value - Normal profit margin:
Inventory
Define Moving Average
Moving average is an average cost flow assumption used with the perpetual inventory system in which a new average unit cost is computed after each purchase and is applied to each issue (sale) of units. It is essentially a short-term, repeated weighted-average method that provides a weighted average on a continuous basis. It allows for the current and continuous costing of the units on hand.
Inventory
What are the inventory valuation rules under IFRS?
IFRS applies an inventory valuation rule of LOWER OF COST OR NET REALIZABLE VALUE, which is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Replacement cost and normal profit margin are not used in IFRS.
Inventory
What are the exceptions to non-monetary exchange treatment?
Generally, a nonmonetary exchange should be based on the fair values of the assets exchanged—resulting in the immediate recognition of a gain or loss.
Exceptions to this treatment include the following:
Fair value is not determinable
Exchange transaction to facilitate sales to customers
Exchange transaction that lacks commercial substance
Under these exceptions, no gains or losses are recognized.
Inventory
Describe the situation (using a diagram) when replacement cost is used to determine LCM
Original Cost—-NRV—–RC—–(NRV-normal profit)
Inventory
True or False
In a perpetual system, LIFO is applied at the time of each sale rather than once a year as in a periodic system
True
In a perpetual system, LIFO is applied at the time of each sale rather than once a year as in a periodic system
Inventory
What is the formula for Average days sales in inventory?
365/ inventory turnover
Inventory
What is the difference between realized holding gains and unrealized holding gains?
Realized holding gains equal the difference between the current cost and the historical cost of assets SOLD or CONSUMED during the period.
Unrealized holding gains equal the difference between the current cost and the historical cost of assets STILL ON HAND at the end of the period.
Inventory
True or False
Realized holding gains equal the difference between the current cost and the historical cost of assets sold or consumed during the period.
Unrealized holding gains equal the difference between the current cost and the historical cost of assets still on hand at the end of the period.
True
REALIZED holding gains equal the difference between the current cost and the historical cost of assets SOLD OR CONSUMED during the period.
UNREALIZED holding gains equal the difference between the current cost and the historical cost of assets STILL ON HAND at the end of the period.
