![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9780132162302/9780132162302_largeCoverImage.gif)
Concept explainers
Basis for Conclusions Case 2: The Lower of Cost or Market - U.S. GAAP, IFRS
Reprinted from the Ernst & Young Academic Resource Center with permission of the Ernst & Young Foundation. Copyright 2014, All rights reserved.
Scene 1
Both IFRS and U.S. GAAP require that firms report Inventory at the lower of cost or market. What is the basic principle/characteristic behind this standard that results in this “lower” reporting approach (asset write-down)?
Scene 2
Read the objectives for IFRS (IASC, International Accounting Standard 2. paragraph 1) and U.S. GAAP (FASB ASC 330-10-10-1).
Based upon what is stated in these objectives, which set of standards is more concerned with the balance sheet presentation of inventories?
Scene 3
Do you think that the reversal of a write-down of inventory does a better job of accurately reflecting the information related to inventory on the balance sheet or on the income statement?
Is the fact that U.S. GAAP disallows the reversal and IFRS allows the reversal consistent with the objectives?
Scene 4
Currently, IFRS is more likely than U.S. GAAP to report assets at fair value (e g . property, plant and equipment can be revalued under IFRS but not U.S. GAAP)
Is the IFRS requirement that prior inventory write-downs be reversed a different way of saying that inventory should be reported at market value under IFRS?
Scene 5
While neither IASC, International Accounting Standard 2 nor FASB ASC 330 provides the reasoning for why the reversal of inventory write-downs is allowed or not allowed, the issues surrounding the reversal of write-downs for long-lived assets should be quite similar. Read the basis of conclusions under U.S. GAAP (FASB, Statement of Financial Accounting Standards No. 144, paragraph B53) and under IFRS (IASC, International Accounting Standard 36. paragraphs BCZ 182 through BCZ 186) that provide a discussion of the reasons the Boards made the decisions that they did.
What are the reasons that one might oppose reversals? What are the reasons that one might support reversals?
Scene 6
Do you believe that companies should be allowed/required to reverse prior inventory write-downs if the market value of the inventory increases in periods subsequent to the initial write-down?
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 10 Solutions
Intermediate Accounting
- Which of the following statements is incorrect? Select one: a. By using the IFRS, goods shipped on consignment from a seller to another company should be included in the inventory of the seller. b. Many argue that LIFO provides a better matching of current costs against revenue from a financial reporting point of view. c. Both IFRS and GAAP account for inventory acquisitions at historical cost and value inventory at the lower-of-cost-or-net-realizable value subsequent to acquisition. d. Both inventory and net income are higher when companies use LIFO in a period of inflation.arrow_forwardanswer pleasearrow_forwardvj subject-Accountingarrow_forward
- ah - ELearning Which method tracks the actual physical flow of goods and each item of inventory is marked, tagged, or coded with unit cost. O a. First in, first out O b. Last in, last out O c. Weighted average method O d. Specific identification method 20 A contingent liability should be recorded in the accounts when: O a. it is reasonably possible the contingency will happen, but the amount cannot be reasonably estimated O b. it is probable the contingency will happen, and the amount owed can be reasonably estimated O citis reasonably possible the contingency will happen, and the amount can be reasonably estimated Od itis probable the contingency will happen, but the amount cannot be reasonably estimated ut of ous page Next page Next activity ous activity ump to. Chapter-1-PPT-Slides- Introduction to the Conceptual Framework for Financial Reporting SIGNMENT - Intermediate ACcounting 1 -in touch AFR 10) a A F2 F5 F6 F7 F8 F9 F10 F11 F3 F4 GIO 144 &arrow_forwardThe application of the lower of cost or market rule to inventory valuation is an example of a. the revenue realization principle b. the going concern assumption c. special industry practices d. conservatismarrow_forwardexpalin it completely on your own knowledge plagiarism strictly not allowedarrow_forward
- 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 00100 00200 00300 00400 00500 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 16.80arrow_forwardThe following information for Tuell Company is available: 1. Assume Tuell uses the LIFO cost flow assumption. what is the correct inventory value in each of the preceding situations under U.S. GAAP? 2. Assume Tuell Uses the average cost inventorγcost flow asstrmption. what is the correct inventory value in each of the preceding situations under U .S. GAAP? 3. Assume that Tuell uses the average cost inventory cost flow assumption. What is the correct inventor)' value rn each of the preceding situations if Tuell uses IFRS?arrow_forwardIf costs are rising, which inventory costing method will result in the lowest income tax expense for the company? Group of answer choices LIFO Specific identification FIFO Weighted average Which of the inventory costing methods is not permitted under International Financial Reporting Standards? Group of answer choices FIFO Specific identification LIFO Weighted average costarrow_forward
- Which of the following is true about the issues of the gross profit method of estimating inventory? O A. This method provides an estimate amount for the ending inventory. O B. Since this method provides estimated amount for the ending inventory, it is not acceptable for financial reporting purposes. OC. This method uses past ratios to make the computation. O D. All of the answers are correct. « Question 2 of 5 A Moving to another question will save this response. MacBook Pro DII F12 F10 F11 F9 FB 吕0 F7 F5 F4 F3 & 23 $ % 6 7 V 8. 3 4 U 20 R Y こ て E ... ث J K L F G J B i V * 00arrow_forwardRequired: Match the following statements 1-10 the appropriate code letter A-C Statements 1-10 are as follows: Change due to understatement of inventory Change due to charging a new asset directly to an expense account Change from expensing to capitalizing certain costs, due to a change in periods benefited Change from FIFO to average cost inventory procedures Change due to failure to recognize an accrue (un-collected) revenue Change in amortization period for an intangible asset Change in expected recovery of an account receivable Change in the loss rate on warranty costs Change due to failure to recognize and accrue income Change in residual value of depreciable plant asset Codes A-C are as follows: A. Change in accounting policy B. Change in accounting estimate C. Error correction Statements 1-10 Codes A-C (select ONE code per statement) 1 2 3 4 5 6 7 8 9 10arrow_forwardWhich 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.arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)