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Flashcards in Inventory Deck (16):

Days sales in avg inventory calculation

Ave inventory at cost/
avg. sales per day at cost

[(Beg inventory + end inventory)/2] /
[COGS/ days in a year ]



Check where original cost and replacement cost lies in respect to the floor and ceiling


How to calculate LIFO Liquidation using price index?

Use base year changes increase or decrease x PI

I.e. Base year amount year 1: 100k, PI= 1.0; year 2: 120K, PI = 1.05; year 3: 128K, PI = 1.1

Layer one = 100K (100K * 1.0)
Layer two change = 20K * 1.05 = 21 K
Layer three change = 128-100-20 = 8K * 1.1 = 8.8K
Total = 100+21+8.8 =129.8K

If there is a loss, say year three: then go to layer two to reduce the additional amount, and the layer one.


IFRS valuation of inventory using?

What about GAAP?

Lower of cost or NRV


Firm commitment to buy inventory at a fixed price, but inventory price has decreased. Treatment of the loss?

Describe the nature of the contract in note and record loss in f/s, as well as recognize a liability for accrued loss.


What are the LCM costs to determine the carrying cost for inventory?

Replacement cost, market floor and market ceilling


Number of days sales in average inventory
Given days in a year, beg and end inventory, sales and COGS

Step 1: find average cost in inventory = (beg inven +end inven)/2
Step 2: find avg. COGS per day
Step 3: 1/2 = days


At price inflation period, perpetual and period inventory system under FIFO or LIFO will result in the same ending inventory?


Because under perpetual FIFO inventory system,COGS is recorded at time of sale, ending Inventory is at the current price level, periodic FIFO inventory is calculating COGS at the end, the price is also at current level. So will result the same ending inventory.


LIFO reserve
Converting from avenge inventory to LIFO, average inventory equals to 375k, LIFO = 320k, LIFO reserve = 35k, what is the JE for adjusting entry for LIFO reserve?

Beginning LIFO reserve is 35, ending is 55 (375-320), so LIFO reserve increased 20K.

JE= COGS. 20


Estimate price level changes for specific inventory are required for what inventory method?

Dollar value LIFO
Because DV LIFO is based on price level index.


To maximize ending inventory using LCM method. Under what inventory system and what cost or market application?

Perpetual and LCM valued at total inventory level.

Periodic resulted in the highest of COGS, that's why it is not used here.


LCM problems

Middle number of NRV and NRV-NP is the cost of inventory
Unless, NRV > Replacement cost > NRV-NP > original cost, the LCM cost is replacement cost

Or NRV > replacement cost > NRV-NP> original cost, then the LCM cost is original cost

Or NRV> NRV-NP > replacement cost, LCM is NRV-NP


For liquidating sales for items purchased as a group, how to allocate the cost of single item within the group?

Allocated in ratios.


Retail inventory method
1. Ending inventory at retail
2. Cost to retail ratio
3. 1x2 = ending inventory at cost
And be aware of the difference of LIFO AND FIFO

FIFO: ignore beginning inventory, calculate cost to retail ratio starting with purchase

LIFO: do use beginning inventory

To calculate total inventory before sale
IN COST: including freight in, exclude purchase discounting, include abnormal shortage in cost
IN RETAIL: excluding freight in, including net markups, also exclude purchase discount, also included abnormal shortage in retail

Here we can find ratio

In RETAIL ONLY: exclude markdowns, sales, employee discounts, and normal shortages, final number x the ratio calculated above to find cost basis


What to do with FIFO, if LCM is disregarded in cost to retail ratio?

Cost to retail ratio = cost column ignore beg inven / (retail purchase+ markup-markdown)



IFRS: LC OR NRV, same cost for similar inventory, Write downs can be reversed, and LIFO is not allowed.

Calculation is: list out the cost and NRV category, and then choose the smallest number from the two categories add together.

GAAP: LCM,same cost don't have to apply to similar items
No reversal on previous write offs, and LIFO is allowed.