financialaccountingandreportinginventory(编辑修改稿)

financialaccountingandreportinginventory(编辑修改稿)内容摘要：

affect a retailer’s inventory? a) Increase No effect b) Increase Increase c) No effect Incease d) No effect No effect Answer: a) Freightin Interest on inventory loan 27 B. Inventory Valuation 28 B Inventory Valuation 1. . a) GAAP requires that inventory be stated @ its actual costs  No loss should be recognized even though replacement or reproduction costs are lower a) Current cost b) Lower of Cost or Market (LCM) c) Precious metals and farm products d) Gross profit e) Standard cost f) Direct costing g) Cost apportionment by relative sales value 2. Exceptions (. where inventory may be not valued @ its act costs) Valued @ Market if lower Valued @ NRV Valued @ GP% to convert sales to COGS Valued @ std cost Valued @ variable costs only (no fixed product cost) Valued based on relative value within basket purchase Valued @ replacement cost if price unstable 29 B Inventory Valuation 3. Lower of Cost or Market a) “A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its costs.” b) Rationale: conservatism and matching principle c) Once inventory has been written down there can be no recovery from the writedown until the units are sold (Differs from marketable securities where recoveries of prior writedowns allowed) d) Exceptions  The subsequent sales prices is not affected by its market value (ex. the pany has a firm sales price contract) Valued @ cost even if cost market value 30 B Inventory Valuation 3. Lower of Cost or Market e) Steps used in determining LCM rule Memorize! ① Determine market (. replacement cost) Replacement cost Ceiling floor NRV NRV – Normal profit ② Determine cost ③ Select the LCM for each individual item or for inventory as a whole Selling price Less: Selling cost or Cost to plete NRV Replacement cost = cost to purchase the item @ valuation date 31 B Inventory Valuation 3. Lower of Cost or Market f) Example of LCM Item Cost Replacement cost Selling price Selling cost Normal profit A B C $ $ $ $ $ A B C Market = $ Cost = $ Market = $ Cost = $ Market = $ Cost = $ LCM = $ LCM = $ LCM = $ 32 B Inventory Valuation 3. Lower of Cost or Market g) Losses from purchase mitments  Legally enforceable agreement to purchase a specified amount of goods at fixed prices in the future Dr. Estimated Loss on PC Cr. Accrued Loss on PC  If market value contract price and the contract is uncancellable, loss should be recognized ① To record loss in the period of decline Dr. Purchases @ market value Dr. Accrued loss on PC Cr. Cash @ contract price ③ To record goods subsequently received I/S (other EXP and Losses) B/S (liab) If further decline in market value, losses should be accrued Dr. Accrued Loss on PC Cr. Recovery on Loss on PC ② To record partial or full recovery of loss before inventory received 33 4. Gross Profit  Used for interim F/S as a part of periodic inventory system  Used also for establishing the amount of loss due to destruction of inventory a) Definition  INV END is estimated by using the GP% to convert sales to COGS  Not acceptable for tax or annual F/S purposes b) When use it B Inventory Valuation 34 4. Gross Profit c) Example: Dahl Co. sells soap at a gross profit percentage of 20%. The following figures apply to the 8 months ended 08/31/year 1 Sales INV BEG Purchases $200,000 100,000 100,000 On 09/01/year 1, a flood destroys all of Dahl’s soap inventory. Estimate the cost of the destroyed inventory. B Inventory Valuation 35 Step 1: calculate COGS% COGS = Sales X COGS % = $200,000 X 80% = $160,000 Sales 100% (COGS) GP 20% 80% Step 2: calculate COGS Step 3: calculate INV END (which is destroyed inventory from flood) INV BEG Purchases (COGS) INV END $100,000 100,000 (160,000) $40,000 c) Answer: 4. Gross Profit B Inventory Valuation 36 5. Cost Apportionment by Relative Sales Value a) Acquisition of a group of assets for a single price – basket purchase b) Requires cost allocation based on relative fair market value Example: Assume $75,000 is paid to acquire land, building, and equipment having the FMV of $40,000, $25,000 and $35,000 respectively. The allocated cost is shown below: Land Building Equipment Item % of FMV in total 40% 25% 35% X LumpSumPrice $75,000 75,000 75,000 = Allocated Cost $30,000 18,750 26,250 B Inventory Valuation 37 Question Time… 1. On 12/31/08, Chewy Co. determined its inventory on a FIFO basis @ $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the inventory could be sold at for $40,000. Chewy’s normal profit is 10% of sales. Under LCM, what is the inventory valued on 12/31/08 B/S? a) $28,000 b) 26,000 c) 24,000 d) 20,000 Answer: c) 38 Question Time… 1. Answer: Answer: c) Replacement cost $20,000 Ceiling floor NRV $28,000 NRV – Normal profit $24,000 √ Vs. Cost $26,000 39 Question Time… 2. Reporting inventory @ LCM is a departure from the accounting principle of a) Historical cost b) Consistency c) Conservatism d) Full disclosure Answer: a) 40 Question Time… 3. Which of the following statements are correct when a pany applying the LCM reports its inventory at replacement cost? a) I。