Financial Reporting And Analysis - Financial Reporting And Analysis Section 2
86. Under US GAAP, inventory is measured at:
- Option : C
- Explanation : Under US GAAP inventory is measured at the lower of cost or market where market value is bound by the limits: NRV, NRV minus normal profit margin.
87. Which of the following statements is most accurate?
- A
Reversal of a write-down limited to the amount of original write-down is permitted under US GAAP.
- B
Reversal of a write-down is permitted only under IFRS and limited to the amount of original write-down.
- C
Reversal of a write-down is permitted under both IFRS and US GAAP but the amount of reversal varies for both standards.
- Option : B
- Explanation : Reversal of a write-down is permitted only under IFRS and limited to the amount of original write-down. Under US GAAP the reversal of a write-down is not allowed.
- Option : B
- Explanation : Under IFRS there will be reversal of the write-down. This reversal will be limited to 40,000. The reversal of the inventory write-down is recognized as a reduction in the cost of sales.
- Option : A
- Explanation : Inventory is measured at the lower of cost or net realizable value. Lower of the two is NRV which is $125. Under IFRS, net realizable value (NRV) = estimated selling price - estimated costs necessary to get the inventory ready for sale and make the sale = 130 – 5 = 125. For 500 units: 500 * 125 = $62,500.
90. Following information is available for a manufacturing company:
| Cost of ending inventory computed using FIFO | $2.5 million |
| Net realizable value | $2.3 million |
| Current replacement cost | $2.1 million |
If the company uses IFRS instead of U.S. GAAP its cost of goods sold ($
millions) is most likely:
millions) is most likely:
- Option : B
- Explanation : Under IFRS, the inventory would be written down to its net realizable value (2.3 million) and cost of goods sold will increase by 0.2 million. Under U.S. GAAP, inventory is written down to its current replacement cost ($2.1 million) and cost of goods sold will increase by 0.4 million. End result is that under IFRS the cost of goods sold will be lower by 0.2 million.
*/?>
*/?>
*/?>
*/?>