Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 2

86 Under US GAAP, inventory is measured at:

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.

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.

88 A company which prepares its financial statements using IFRS wrote down its inventory value by €40,000 in 2011. In 2012, prices increased and the same inventory was worth €50,000 more than its value at the end of 2011. Which of the following statements is most accurate? In 2012, the company’s cost of sales:

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.

89 A kitchen appliance store prepares its financial statements in accordance with IFRS. The store has 500 mixer-grinders in its inventory. Each unit is sold at a price of $150. The store paid on an average of $140 per unit to the manufacturer of the appliance. Sale of appliances has been slow in recent months. The store estimates it can sell each mixer-grinder for $130 if it announces a sale for a limited period along with free shipping at the cost of $5 per mixer-grinder. The manufacturer has also lowered the price to $100 because of the low demand. The total carrying amount of the 500 mixergrinders on the store’s balance sheet would be closest to:

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:

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.