Financial Reporting And Analysis - Financial Reporting And Analysis Section 2

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91. Which of the following is most likely to be a financial statement disclosure required by IFRS concerning inventory?

  • Option : C
  • Explanation : Under both IFRS and US GAAP, the accounting policies used to measure inventory and the cost formula must be disclosed.
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92. Which of the following is least likely to be a financial statement disclosure required by IFRS concerning inventory?

  • Option : A
  • Explanation : The disclosure required by IFRS is the carrying amount of inventory at fair value minus costs to sell.
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93. Reversal of prior-year inventory write-downs are most likely permitted under:

  • Option : B
  • Explanation : Reversal of prior-year inventory write-downs are permitted under IFRS but not under U.S. GAAP.
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94. Which of the following is least likely correct about the measurement of inventory value under U.S.GAAP?

  • Option : C
  • Explanation : Reversal of write downs are prohibited under U.S. GAAP and permitted under IFRS.
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95. Which ratio is most likely higher for a company using FIFO method to account for inventory, during a period of rising prices, when compared against a company using weighted average cost method?

  • Option : C
  • Explanation : In periods of rising prices FIFO results in a higher inventory value and a lower cost of goods sold and therefore a higher net income. The higher net income increases return on sales. The higher reported net income also increases retained earnings, and therefore results in a lower debtto-equity ratio not a higher one. The combination of higher inventory and lower cost of goods sold decreases inventory turnover (CGS/inventory).
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