Inventory (F3:M3) Flashcards
under GAAP, once inventory is written down can it be written back up?
No!
under GAAP and IFRS, when is the lower of cost and NRV used?
GAAP:
for all inventory not costed using LIFO or the retail inventory method
IFRS:
for all inventory (IFRS does not permit use of LIFO)
when is lower of cost or market (LCM) used?
when inventory is costed using LIFO or the retail inventory method
explain the following: market value replacement cost market ceiling market floor
*these are the components used to value inventory at LCM
MV (under GAAP): the median of an inventory item’s replacement cost, its market ceiling, and its market floor
RC: the cost to purchase the item of inventory as of the valuation date
MC: an item’s net selling price less costs to complete and dispose (called NRV)
MF: market ceiling less a normal profit margin (profit margin % x selling price)
what is the journal entry to record write-down of inventory?
inventory loss due to decline in market value (d
inventory (c
what is the formula for COGS in a periodic inventory system?
*Remember, COGS is determined after the physical count
begin inventory purchases \_\_\_\_\_\_\_\_\_\_\_\_\_ costs available for sale (ending inventory) *physical count \_\_\_\_\_\_\_\_\_\_\_\_\_ COGS
briefly explain FIFO
first costs inventoried are first transferred to COGS
ending inventory and COGS are the same whether a period or perpetual system is used
in periods of rising prices, the FIFO method results in what 3 things? LIFO is literally the opposite
highest ending inventory
lowest COGS
highest net income
how is weighted average cost per unit calculated?
total costs of inventory available/total units available
what is the difference between weighted average method and moving average method?
weighted- period system
moving- perpetual system
briefly explain LIFO
last costs inventoried are the first costs transferred to COGS
LIFO does not generally relate to actual flow of goods in a company
when is an additional LIFO layer created?
in any year in which ending inventory is greater than beginning inventory
begin: 485
layer: 125 (added to fill the gap between begin and end)
end: 610
what is the formula for calculating price index? (dollar-value LIFO)
ending inventory at current year cost
_____________________________
ending inventory at base year cost
after calculating price index, what must be done to find “at dollar-value LIFO”?
multiple price index by corresponding LAYER at base year cost.
LAYER at dollar-value LIFO is added to beginning of year at dollar-value LIFO to find end of year balance at dollar-value LIFO
what does a gross profit percentage of 20% mean?
COGS is 80%
what is the journal entry to record loss on purchase commitment and when is the loss recorded?
Estimated loss on purchase commitment (d)
Estimated liability on purchase commitment (c)
*recorded in period in which the price declined
is freight-out a part of COGS?
no, it is a selling expense
under the moving-average method, a new weighted average cost is computed when?
after each purchase
businesses that deal with agricultural products and precious metals generally recognize revenue when?
at the time of production if there is a ready market and unit-interchangeability
is insurance on manufacturing equipment an inventorial cost?
yes!
which inventory valuation method best reflects the true economic value of ending inventory?
dollar-value LIFO because it uses a price index to adjust for changing price levels
what circumstance requires a loss on purchase commitment to be recorded?
A loss is only recorded under a purchase commitment in which the purchaser is OBLIGATED to purchase a fixed number of units. (not “EXPECTS to purchase”)
