Inventories

Question 1

Valuation

Answer 1

IFRS - Lower of cost & NRV (Estimated SP (-) Estimated cost necessary to make sale)
US GAAP
FIFO & WA - Cost or NRV (lower)
LIFO & Retail Inventory method - Cost or Replacement cost (lower)
Replacement cost (Mkt Value) - can’t be higher than NRV but can’t be lower than NRV (-) Profit margin

Question 2

Reversals (reduces COGS)

Answer 2

IFRS allows but US GAAP doesn’t

Question 3

Producers of Agri & forest products & mineral & mineral products & commodity broker - traders

Answer 3

Value at NRV. Mark to Market inventor accounting is allowed for bullion

Question 4

Write down (Rising Price scenario)

Answer 4

FIFO & WA are expected to get more write-downs than LIFO. Even if it happens amt would be much smaller

Question 5

Current replacement value

Answer 5

FIFO closing inventory closely reflect CRV & LIFO COGS closely reflect CRV

Question 6

Interpretation

Answer 6

High sales growth with high inventory TO (Low inventory days) is good which means there is no stock out

Question 7

Direct vs Indirect Exp

Answer 7

Direct exp can be bifurcated & transferred to next year. Indirect can’t

Question 8

Weighted Avg Valuation

Answer 8

Always within FIFO & LIFO value

Question 9

FG Storage cost

Answer 9

Always indirect exp whether co purchases RM & convert to FG or directly buy FG

Question 10

COGS under WA

Answer 10

1st find opening balance in unit multiply with CPU add purchase value now divide value/unit to find new CPU. Finally, multiply CPU with unit sold

Question 11

Inventory Register Mgt

Answer 11

Periodic & Perpetual. When qn gives date follow perpetual. Under FIFO perpetual or periodic system doesn’t matter. COGS & Inv remains same

Question 12

LIFO Liquidation

Answer 12

Under rising price scenario, co follows LIFO & doesn’t buy new inventory in 2nd year means 2nd year profit would be much higher. Analyst have to consider this

Question 13

LIFO Reserve

Answer 13

(+)ve means inventory value is rising. Inventory = Closing + clg LIFO Reserve. Equity = Closing + clg LIFO Reserve (1-TR). Cash = Closing (-) TR x clg LIFO Reserve. COGS = Opg LIFO Res + COGS as per LIFO - Clg LIFO Res. Page 207 qn 22 - 27

Question 14

Increase in inventory yoy basis

Answer 14

FG - Bad, RM & WIP - Good

Question 15

Change in method

Answer 15

IFRS - FIFO, WA - Retrospective basis
US GAAP - FIFO, WA - Retro LIFO - Prosp