Inventory Flashcards

1
Q

IFRS inventories must be reported at what cost?

A

LCNRV (lower of cost or NRV)

At the lower of 1) original cost or 2) NRV (SP - cost of disposal)

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2
Q

How to calculate LCM and which inventory methods must use LCM?

A

LCM applies only to LIFO or retail inventory methods.
LCM - lower of original cost vs market value.
Market value - middle of 3 numbers.
1) Ceiling - NRV (SP - disposal cost)
**disposal cost - cost to complete, freight out, sales commissions.
2) Floor - NRV - normal profit margin
3) Replacement cost

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3
Q

How to calculate LCNRV and which inventory methods must use LCNRV?

A

LCNRV - lower of cost or NRV - all inventory except LIFO or retail inventory method.

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4
Q

When is dollar value LIFO used?

A

Dollar Value LIFO is used for a company with multiple items that cannot be kept track by item. Instead of taking items to count, dollar value LIFO takes dollar value.

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5
Q

Dollar value LIFO - how is price level index is made?

A
  1. Simplified (use CPI for your industry - given)
  2. Link Chain - single cumulative index, compared with previous year
    3) double extension (extend back to base year)
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6
Q

How do you calculate dollar value LIFO?

A

Ending inventory / inflation factor = ending inventory at base year $ (For the incremented amount is factored with index again to calculated the added dollar value LIFO).

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7
Q

When is inventory estimation method is used? and what kind of methods are available?

A

when the inventory is damaged / irrecoverable, use these estimations to calculate the inventory lost.
1. gross profit (margin) method, 2. retail inventory method, 3. firm purchase method

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8
Q

Explain how to record 1. gross profit (margin) method, 2. retail inventory method, 3. firm purchase method

A
  1. gross profit - calculate the estimate of COGS by using the historical gross profit percentage, then back into ending inventory
  2. retail inventory method try to come up with estimation of profit / cost
    a. conventional retail inventory method - LCM
    Goods available sale - cost / retail = C/R % x ending @ retail = ending inventory at cost
    Beg + Purchase + Freight in + Net Markups (only retail = goods available for sale
    For retail - net markdowns - losses - sales @ retail = ending inventory @ retail
    b. LIFO retail inventory method - difference from (a) is to include net mark-ups/net mark-downs in the cost to retail % calculation, beginning inventory is not included in the cost to retail % calculation
  3. firm purchase commitments - a non-cancelable agreement to buy inventory in the future. Loss is contract price - market price
    DR: Estimated loss (I/S)
    CR: Estimated Liability
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