inventory

Question 1

How to evaluate LCM on inventory?

Answer 1

Compare market with RC first, if RC is smaller, then compare RC to NRV or NRV-NP, choose the middle one.

If RC is between ceiling and floor, market is the cost

If RC is > ceiling, ceiling is the cost

If RC is RC>NRV, the cost is NRV, because NRV-NP is the smallest, NRV will be in the middle, so the cost will be NRV

Question 2

Retail inventory method
Three basic calculation to get the inventory cost

What are they?

Answer 2

1. Ending in neither at retail
2. Cost to retail ratio

1/2 = ending inventory at cost

Question 3

1. Mark ups is included in cost or retail?
2. What about the abnormal shortage?
3. What about the market downs, normal spoilage, employee discounts and sale returns?

What is conventional retail method?

Answer 3

1. Retail, only retail would have markup and mark downs
2. Abnormal shortage would appear on both retail and cost because the damage is uncontrollable by both inventory and retail store
3. All at retail level

Just the very basic retail method using FIFO flow assumption

Question 4

How to calculate the cost of sale using conventional method?

FIFO: include everything except beg inv

Answer 4

1. Add markups, subtract markdowns , and add beginning inventory and then find the ratio * ending inventory at cost
2. Using the cost of goods sold calculation to find COGS

I.e.: cost to retail ratio
Cost: beg + purchase + freight in - return = cost inventory

Retail: all at retail level: beg + purchase + freight in + net Markups = cost at retail

Cost at inventory / cost at retail = ratio

Ending inventory at retail = cost at retail - markdowns - sales

Ending inventory at cost = ending inventory at retail * cost to retail ratio = ending inventory

Cost of good sold at cost: beg + purchase - end, retail is the same

Question 5

When using LCM method for ending inventory evaluation, the market down is included?

Whe using LIFO LCM method, excluding both beginning inventory and mark downs in ratio calculation?

Answer 5

No, excluded to make the ending inventory value smaller

Incorrect - including mark up, exclude markdowns

Question 6

The retail inventory method include what account in cost and retail calculation?

What both all exclude in the ratio calculation?

Answer 6

Purchase returns

Beginning inventory

Ending inventory calculation include all in retail -sales * ratio = cost of ending inventory

Question 7

Variation for FIFO, FIFO& LCM, avg, avg& LCM

Answer 7

FIFO- exclude beg inventory for both
Only measure the current period

FIFO & LCM - exclude beg inventory for both and subtract net markdowns to be more conservative

AVG - include both beg and purchase for both

AVG & LCM - include beg inventory, but exclude net markdowns

LCM IS MORE conservative, so subtract markdowns

AVG always include beginning inventory

Question 8

For commitment loss, do you accrual the loss, is it reported in income stmt and disclose it in note if report at year end?

Answer 8

Commitment loss is accrued compare to he contractual price, if contract price is higher, a loss is recognized and recorded in income stmt as well as disclose in notes in year end.

Question 9

Under IFRS, how is inventory being evaluated?

Answer 9

Use LC or NRV

Literally compare cost to NRV, whichever is lower
(Easier than GAAP)

Reversal of write down is permitted
LIFO is prohibited
Cost flow mirror physical flow (LIFO)

Question 10

FOB destination, who pay for freight cost?

Answer 10

Seller pay for package for shipping, shipping and special handling cost

Question 11

If there are overstated ending inventory in year one counterbalance in year two, this means?

Answer 11

A prior year error correction must be recorded in year two when it is discovered