The New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting (2018) states that assets can be measured at historical cost or current value. One measure of current value is the amount an asset can expected to be sold for in an active market, i.e. fair value. Fair value may be higher or lower than historical cost. However, the accounting standard for inventory (NZ IAS 2) does not allow inventory, which is an asset, to be valued above the historical cost. It must be measured at the lower of historical cost and fair value. Which accounting principle supports the accounting practice of valuing inventory at the lower of historical cost and fair value? O a. All of the options are correct O b. Historical cost Oc. Faithful representation O d. Fair value O e. Prudence (or conservativism)

The New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting (2018) states that assets can be measured at historical cost or current value. One measure of current value is the amount an asset can expected to be sold for in an active market, i.e. fair value. Fair value may be higher or lower than historical cost. However, the accounting standard for inventory (NZ IAS 2) does not allow inventory, which is an asset, to be valued above the historical cost. It must be measured at the lower of historical cost and fair value. Which accounting principle supports the accounting practice of valuing inventory at the lower of historical cost and fair value? O a. All of the options are correct O b. Historical cost Oc. Faithful representation O d. Fair value O e. Prudence (or conservativism)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Which of the following statements about the LIFO Reserve Disclosure is NOT true? a. Usually, FIFO…

A: The credit balance in the LIFO reserve reports the difference since the time that LIFO was adopted.…

Q: When following U.S. GAAP, the lower-of-cost-or-market rule for inventory requires a firm to report…

A: As per U.S. GAAP, the inventory should be reported in the balance sheet at their Cost or Market…

Q: If the inventory reported on the statement of financial position is understated, then the net income…

A: The objective of the question is to understand the relationship between the inventory reported on…

Q: Question: Which of the following inventory valuation methods assumes that the most recently acquired…

A: The question is asking to identify the inventory valuation method that assumes the most recently…

Q: When an exchange of inventory items between an enterprise and another entity is undertaken to serve…

A: Non-monetary exchange is governed by Accounting for Non-monetary Transactions

Q: 1.If Company Abee holds consigned goods from Company XyXy, which statement is true? Group of answer…

A: Consignment is the type of business in which one person (consignor) sent goods to the other person…

Q: What method does the company use to value its inventory? What other alternativesare available under…

A: IFRS: International Financial Reporting Standard is abbreviated as IFRS. The IFRS is set up to bring…

Q: Discuss how a change to the LIFO method of inventory valuation is handled when it is impracticable…

Q: If costs are rising, which inventory costing method will result in the lowest income tax expense for…

A: Inventory is very necessary in the business but method of valuation decide the cost of goods sold…

Q: Inventory valuation is the cost associated with an entity's inventory at the end of a reporting…

A: Introduction: Inventory is a type of asset that is sold during daily business operations.. Inventory…

Q: Discuss how, in choosing the accounting methods below, the following ratios can be affected – rate…

A: Answer: •The return on assets shows the percentage of how profitable a company's assets are in…

Q: Which U.S. GAAP principle or rule would apply if the net realizable value of acompany’s inventory is…

A: Net realizable value: Net realizable value is the net amount of receivables which a business expects…

Q: The following information for Tuell Company is available: 1. Assume…

A: Inventory refers to all of the items, goods, commerce, and materials held by a company for the…

Q: Fernando’s Pasta purchased inventory and later wrote it down. Th e current net realizablevalue is…

A: IFRS necessitate the reversal of inventory write-downs if net realizable values increase. US GAAP…

Question

The New Zealand Equivalent to the IASB Conceptual Framework for Financial Reporting (2018) states that assets can be measured at historical cost or current value. One
measure of current value is the amount an asset can expected to be sold for in an active market, i.e. fair value. Fair value may be higher or lower than historical cost.
However, the accounting standard for inventory (NZ IAS 2) does not allow inventory, which is an asset, to be valued above the historical cost. It must be measured at the
lower of historical cost and fair value.
Which accounting principle supports the accounting practice of valuing inventory at the lower of historical cost and fair value?
O a. All of the options are correct
O b. Historical cost
O c.
Faithful representation
O d. Fair value
Oe.
Prudence (or conservativism)

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1Basic Information

VIEW

Step 2 Solution

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Discuss the primary difference between U.S. GAAP and IFRS with respect to determining the cost of inventory.
One of the significant remaining differences between U.S. GAAP and IFRS is the treatment of inventory. Which of the following accurately states the reason for this significant difference? O IFRS does not allow LIFO. O IFRS does allow Dollar Value LIFO. O IFRS does allow Weighted Average. O IFRS does not allow FIFO.
Discuss the primary differences between U.S. GAAP and IFRS with respect to the lower of cost or net realizable value rule for valuing inventory.
Hoosier Inc. uses the LIFO inventory cost method to prepare the company's tax return. Which method must the company use to account for inventory on their financial statements? Assume US GAAP and rising costs. O FIFO LIFO O Weighted average or LIFO Specific Identification O LIFO or FIFO, but not weighted average
When is ending inventory written down below its acquisition cost on the balance sheet? Select one: A. When units are damaged, physically deteriorated, or obsolete B. When the inventory's replacement cost exceeds its acquisition cost C. When the inventory's replacement cost is below its acquisition cost D. Both A and C
Which of the following statements is true of tax rules for applying the lower-of-cost-or- net realizable value method to inventory? Tax rules do not address the choice of methods in applying the lower-of-cost-or- net realizable value method to inventory. Tax rules require the use of the total inventory basis. Tax rules require the use of an individual-item basis if it practicable. O Tax rules require the use of the method which minimizes the recorded loss.
State how each of the following items is reflected in thefinancial statements.(a) Change from FIFO to LIFO method for inventoryvaluation purposes.(b) Charge for failure to record depreciation in a previousperiod.(c) Litigation won in current year, related to prior period.(d) Change in the realizability of certain receivables.(e) Write-off of receivables.(f) Change from the percentage-of-completion to thecompleted-contract method for reporting net income.
Which of the following statements about the use of the FIFO assumption is NOT true? a.The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account. b.The FIFO assumption is not affected by the inventory control method. c.In periods of rising prices it produces a higher profit than LIFO. d.The FIFO assumption produces inventory asset values that are based on older purchase costs.