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Chapter 9: Q1Q (page 442)

Question:Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?

Short Answer

Expert verified

The loss should be recorded for the decrease in the value of the inventory, and inventories will be reported at net realizable value.

Step by step solution

01

Step-by-step-solutionStep1:

Inventories are reported at the cost for which it is purchased. However, in the situation when the cost of inventories declines, it violates the historical cost principle, as a decline in the value of inventories is treated as a loss. And in the balance sheet, it will be shown at net realizable value, not at the cost.

02

Step 2:

Net realizable is the estimated amount to be collected from the sale of inventory. It can be calculated by deducting the estimated collection cost, disposal cost, transportation cost, from the original cost of the inventory.

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Most popular questions from this chapter

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

Use the information for Boyne Inc. from BE9-10. Compute ending inventory at cost using the LIFO retail method.

During 2017, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of \(59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. Type No. of Chairs Estimated Selling Price Each Lounge chairs 400 \)90 Armchairs 300 80 Straight chairs 700 50 During 2017, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2017? What is the amount of inventory of unsold straight chairs on December 31, 2017?

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases using LCNRV. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Sales value 14.80 19.20 15.20 10.40 17.80 Estimated cost to complete 1.50 1.90 1.65 .80 1.00 Estimated cost to sell .50 .70 .55 .40 .60

All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the: (a) definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. (b) average-cost method is prohibited under IFRS. (c) inventory basis determination for write-downs differs between GAAP and IFRS. (d) guidelines are more principles-based under IFRS than they are under GAAP.
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