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Inventory > Inventory-Kyra > Flashcards

Inventory-Kyra Flashcards

1
Q

What is the primary basis of accounting for inventory?

A

Cost

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2
Q

A manufacturer typically has what three types of inventory?

A
  1. Finished Goods (completed goods awaiting sale)
  2. Work in process (in course of production)
  3. Raw materials and supplies (items to be consumed or used directly/indirectly in production)
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3
Q

What is NOT an acceptable attribute to measure inventory?

A

PV of future CF’s

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4
Q

What are acceptable attributes to measure inventory?

A

HC
Replacement cost
Net Realizable Value

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5
Q

What is fixed manufacturing overhead allocated to?

A

Inventory cost and based on normal capacity of production facility

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6
Q

Selling expenses are ___ charges? and never?

A

period charges and never included in inventory costs

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7
Q

General and administrative expenses are NOT included in ___ except?

A

G&A expenses are not included in inventory except for those clearly related to production.

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8
Q

Interest cost can be capitalized for inventory except when?

A

Interest cost should not be capitalized for inventory routinely manufactured or produced in large quantities on regular basis.

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9
Q

Inventory is accounted for at lower of?

A

historical cost or market

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10
Q

In accounting for inventory, departure from cost basis is required when?

A

when the utility of the goods is no longer as great as the cost (LCM)

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11
Q

In accounting for inventory at LCM, if a decline takes place?

A

Recognize the loss in the period incurred

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12
Q

Holding gains may be?

A

Unrealized or realized (inventory sold)

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13
Q

Inventory realized holding gains?

A

Difference between current cost and historical cost of an asset sold or consumed during the period - COGS

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14
Q

Inventory unrealized holding gain?

A

different between current cost and historical cost of an asset still on hand at end of period.

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15
Q

Holding gains for COGS are?

A

Realized holding gains

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16
Q

At the balance sheet date, goods in transit that were shipped FOB shipping point?

A

Included in inventory of buyer

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17
Q

At the balance sheet date, goods in transit that were shipped FOB destination?

A

Included in inventory of seller

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18
Q

Goods out on consignment should be included in whose inventory?

A

Consignor

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19
Q

Consignee should NOT include what in its inventory?

A

Consignor’s inventory

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20
Q

Define inventory systems and what they are used for?

A

Used to account for physical flow of units and costs

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21
Q

Which cost flow assumption is NOT allowed under IFRS?

A

LIFO

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22
Q

Under the periodic inventory system, hows is the computation of average cost per unit calculated?

A

Total COGA4S divided by total units available for sale

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23
Q

How do you calculate the total COGA4S?

A

BB Inventory plus purchases (cost)

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24
Q

How do you calculate total number of units available for sale?

A

BB inventory units plus units purchased

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25
Q

Which inventory cost flow assumption is the same under perpetual and periodic inventory systems during a period of rising prices?

A

FIFO - same COGS and EI

26
Q

Which inventory cost flow assumption is different under perpetual and periodic inventory systems?

A

LIFO and average

LIFO is not permitted under IFRS

27
Q

The average cost method under perpetual uses what to calculate unit costs?

A

Moving average

requires new unit cost be calculated after each acquisition

28
Q

How does the perpetual moving average method work?

A

You recalculate average cost per unit every time there is a PURCHASE or acquisition

29
Q

FIFO verses LIFO in a period where prices are unchanged?

A

LIFO=FIFO

30
Q

FIFO verses LIFO period of rising prices?

A

FIFO = COGS are lower
EI is higher
than LIFO

31
Q

FIFO verses LIFO period of falling prices?

A

FIFO = COGS are higher

EI is lower

32
Q

What is an advantage of LIFO?

A

It matches current cost against current revenue

33
Q

What is the disadvantage of LIFO?

A

Inventory is stated in terms of oldest costs

NOT PERMITTED UNDER IFRS

34
Q

What is the objective of dollar value LIFO?

A

state inventory on LIFO cost basis

the dollar value aspect stems from procedure to arrive at LIFO cost

35
Q

Dollar value LIFO measures inventory layers using terms of __ __ rather than __ ___?

A

dollar values rather than physical units

36
Q

Dollar value LIFO requires?

A

Use of a price index (internally generated or externally generated)

Concept of base year - year dollar value LIFO is adopted

37
Q

The use of price index can be generated?

A

internally or externally

38
Q

What is dollar value LIFO base year?

A

The year that dollar value LIFO is adopted

39
Q

Under dollar value LIFO - how do you determine the physical increase or decrease in inventory?

A

compare EI restated to base year costs (using YE price index)

to Beg EI restated to base year costs (using index)

40
Q

What are the dollar value LIFO procedures?

A
  1. EI is priced at current costs
  2. EI is restated to base year costs using index (YE) - convert EI at current year cost to base year by dividing CY by Price index
  3. BI is restated to base year costs using appropriae index

determine if there was a physical increase in inventory

  • if the inventory increased or decreased stated in terms of base year costs -
    • the increase in inventory are priced in terms of prices at end of CY - convert base year increase to dollar value lifo cost by mutliplying by current EOY price index
    • the decrease in inventory is priced in terms of prices prevailing when most recent inventory layers were added - so you will have to reduce preveious layers up to the point of the converted dollar value lifo increase.
41
Q

Once a dollar value LIFO layer is reduced?

A

It cannot be restored - you will continue on with the calculation of the next year’s layer.

42
Q

Describe the retail method in terms of inventory?

A

system for determining inventory at retail prices

43
Q

How does the retail method for inventory work? 2 steps

A
  1. Takes inventory at retail prices and

2converts inventory at retail to cost (LIFO, FIFO, Avg) or LCM

based on cost to retail ratio

44
Q

What does the application of the retail method require?

A

A system that provides:

- BI and purchases at retail

45
Q

Does IFRS allow the retail method?

A

YES

46
Q

When is the Gross Profit Inventory method used?

A

can be used to estimate inventory cost when a physical inventory is impossible or impractical

it can also be used to test reasonableness of a physical inventory

47
Q

GP inventory method can be used to test?

A

Reasonableness of physical inventory

48
Q

GP inventory method is based on the assumed relationship between?

A

Sales and gross profit

49
Q

Steps in application of GP method?

A
  1. determine Cost of Goods Available for sale (BI plus net purchases)
  2. compute gross profit (sales times GP %)
  3. calculate COGS (sales at cost basis) COGA4S less GP
  4. determine EI at cost COGA4S less COGS
50
Q

A departure from the costs basis (LIFO, FIFO, Average) is required when?

A

utility of goods no longer as great as the cost

51
Q

The decline in the utility of the goods is recognized by?

A

Stating inventory at LCM

** the key issue is determining the market price

52
Q

In the lower of cost or market, the market price equals?

A

replacement cost unless:

-Replacement cost is greater than NRV or less than NRV less normal profit margin

has a ceiling and a floor

53
Q

What is the net realizable value?

A

Selling price
Less costs of completion and disposal
=NRV

54
Q

In LCM, to determine market cost why does the replacement cost have a ceiling and floor?

A

To prevent overstating or understating inventory

55
Q

Once inventory has been written down?

A

There can be no recovery from write down until units are sold

56
Q

LCM can be applied to?

A

individual items
major categories
inventory as a whole

most conservative approach is to apply to individual items because you are selecting the lowest value for each individual item

57
Q

What is the most conservative approach when using LCM?

A

To apply to each inventory item separately - select lowest value for each inventory item

58
Q

LCM can be reflected in accounts in what ways?

A
  1. Direct method BI and EI are reflected at LCM

loss from price decline is included in COGS

  1. Allowance Method - EI is reflected at cost and an allowance account is used for write downs

BI is reflected at LCM

Loss from price decline is reported separately

NI is the same under both methods

59
Q

Explain the direct method for reflecting LCM?

A

BI and EI are reflected at LCM

loss from price decline rolls up into COGS

60
Q

Explain Allowance method for LCM?

A

BI is stated at LCM

EI is stated at cost - allowance account is used for write downs

loss from price decline is reported separately

the next year there is an AJE to reflect PY EI at LCM for the next year’s BI (DR Allowance for Decline and credit inventory)

in the income statement you get Gross profit and then deduct inventory decline

61
Q

NI is the same under the direct and allowance methods but what is different under the two methods?

A

How the inventory price decline is reported.

For direct method it does NOT separate the loss from inventory decline from COGS

For allowance method, it separates the loss from inventory price decline from COGS using allowance account DR Loss and Credit Allowance

Inventory (1 decks)

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