Inventory

Question 1

IFRS inventories must be reported at what cost?

Answer 1

LCNRV (lower of cost or NRV)

At the lower of 1) original cost or 2) NRV (SP - cost of disposal)

Question 2

How to calculate LCM and which inventory methods must use LCM?

Answer 2

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

Question 3

How to calculate LCNRV and which inventory methods must use LCNRV?

Answer 3

LCNRV - lower of cost or NRV - all inventory except LIFO or retail inventory method.

Question 4

When is dollar value LIFO used?

Answer 4

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.

Question 5

Dollar value LIFO - how is price level index is made?

Answer 5

1. Simplified (use CPI for your industry - given)
2. Link Chain - single cumulative index, compared with previous year
   3) double extension (extend back to base year)

Question 6

How do you calculate dollar value LIFO?

Answer 6

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).

Question 7

When is inventory estimation method is used? and what kind of methods are available?

Answer 7

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

Question 8

Explain how to record 1. gross profit (margin) method, 2. retail inventory method, 3. firm purchase method

Answer 8

1. gross profit - calculate the estimate of COGS by using the historical gross profit percentage, then back into ending inventory
2. 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
3. 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