Inventory & Other Assets Flashcards
How is Inventory reported on the balance sheet under lower of cost or market?
Market is the middle value of replacement cost, market ceiling, and market floor.
Replacement cost: usually given
Market ceiling: Net realizable value (sales value - completion and disposal costs)
Market floor: Net realizable value - profit margin
How is net realizable value calculated in the lower of cost and net realizable value method?
NRV = Net selling price - completion and disposal costs
LIFO Periodic - ending inventory formula
Ending inventory in units = total inventory count * oldest cost
LIFO Perpetual - ending inventory
Re evaluate cost after each sale (running total)
What do land costs include?
Costs of getting the land ready for intended use:
Razing old buildings - Salvage (proceeds from sale of any existing buildings or scrap) + Title insurance and legal fees
When should legal fees in defending patent rights be capitalized? (successful or unsuccessful litigation)
- Capitalized successful litigation ONLY
- If it is unsuccessful, legal fees are treated as an expense on the Income Statement
What type of asset is crypto recorded as? And how are they recognized?
Crypto assets are recorded as intangible assets that have an indefinite life and are recognized at their fair value
How to test an asset for impairment
- Compare the carrying amount to the sum of the undiscounted future cash flows
- If the carrying amount is less than the sum, no impairment loss is recorded
Depletion base and expense formula
Depletion base = Purchase price + Development costs + Estimated restoration costs - Expected salvage value
Depletion expense = Depletion base * Units sold
What is a half-year convention when calculating depreciation expense?
A half year convention enables companies to claim half of the asset’s depreciation for the first and last year it’s in service
When does the capitalization of interest begin and end?
Begins:
1. When expenditures for the asset have been made
2. Activities necessary to get the asset ready for intended use are in progress
3. Interest cost is being incurred
Ends: When the asset is substantially complete and ready for the intended use
What is the recoverability test when testing for impairment and which assets can be recovered?
Intangible assets that has a limited useful life is the only kind that is subject to this test
Compare undiscounted future cash flows to the carrying value of the asset, if the carrying value is greater, then perform the fair value test
Cost per unit in calculating weighted average
(Total cost of beginning + purchased inventory) / Total number of units = Cost per unit
Explain the specific identification method in inventory valuation
The cost of each item is uniquely identified to that item
Explain the moving average method in inventory valuation
Computes the weighted average cost after each PURCHASE = Inventory + current purchase / Total units available
Dollar value LIFO method price index formula
Ending inventory at current year cost / Ending inventory at base year cost
