Inventory Flashcards
IFRS inventories must be reported at what cost?
LCNRV (lower of cost or NRV)
At the lower of 1) original cost or 2) NRV (SP - cost of disposal)
How to calculate LCM and which inventory methods must use LCM?
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
How to calculate LCNRV and which inventory methods must use LCNRV?
LCNRV - lower of cost or NRV - all inventory except LIFO or retail inventory method.
When is dollar value LIFO used?
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.
Dollar value LIFO - how is price level index is made?
- Simplified (use CPI for your industry - given)
- Link Chain - single cumulative index, compared with previous year
3) double extension (extend back to base year)
How do you calculate dollar value LIFO?
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).
When is inventory estimation method is used? and what kind of methods are available?
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
Explain how to record 1. gross profit (margin) method, 2. retail inventory method, 3. firm purchase method
- gross profit - calculate the estimate of COGS by using the historical gross profit percentage, then back into ending inventory
- 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 - 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