西方中级会计学8.ppt

Inventories AdditionalIssues 9 McGraw Hill Irwin Copyright 2011bytheMcGraw HillCompanies Inc Allrightsreserved Reporting LowerofCostorMarket Inventoriesarevaluedatthelower of cost ormarket LCMisadeparturefromhistoricalcost Themethodcauseslossestoberecognizedintheperiodthevalueofinventorydeclinesbelowitscostratherthanintheperiodthatthegoodsultimatelyaresold DeterminingMarketValue MarketShouldNotExceedNetRealizableValue Ceiling MarketShouldNotBeLessThanNetRealizableValuelessNormalProfit Floor GAAPdefines marketvalue intermsofcurrentreplacementcost Marketshouldnotbegreaterthanthe ceiling orlessthanthe floor DeterminingMarketValue CeilingNRV ReplacementCost NRV NPFloor DesignatedMarket Cost NotMoreThan NotLessThan Or Step1DetermineDesignatedMarket Step2CompareDesignatedMarketwithCost LowerofCostOrMarket LowerofCostorMarket Anitemininventoryhasahistoricalcostof 20perunit Atyear endwegatherthefollowingperunitinformation currentreplacementcost 21 50sellingprice 30costtocompleteanddispose 4normalprofitmarginof 5HowwouldwevaluethisitemintheBalanceSheet LowerofCostorMarket ReplacementCost 21 50 21 50 DesignatedMarket Historicalcostof 20 00islessthandesignatedmarketof 21 50 sothisinventoryitemwillbevaluedatcostof 20 00 1 ApplyLCMtoeachindividualitemininventory 2 ApplyLCMtologicalinventorycategories 3 ApplyLCMtotheentireinventoryasagroup ApplyingLowerofCostorMarket Lowerofcostormarketcanbeapplied3differentways AdjustingCosttoMarket RecordtheLossasaSeparateItemintheIncomeStatementLossonwrite downofinventoryXXInventoryXXRecordtheLossaspartofCostofGoodsSold CostofgoodssoldXXInventoryXX U S GAAPvs IFRS LCMrequiresselectingmarketfromreplacementcost netrealizablevalueorNRVreducedbythenormalprofitmargin DesignatedmarketiscomparedtohistoricalcosttodetermineLCM IASNo 2 statesthatthedesignatedmarketwillalwaysbenetrealizablevalue Internationalstandardsrequireinventorytobevaluedatthelowerofcostormarket buttheprocessisslightlydifferentfortheU S methodofapplyingLCM U S GAAPvs IFRS UnderU S GAAP theLCMrulecanbeappliedtoindividualitems logicalinventorycategories ortheentireinventory ReversalsarenotpermittedunderGAAP TheLCMassessmentusuallyisappliedtoindividualitems althoughusinglogicalinventorycategoriesisallowedundercertaincircumstances Ifaninventorywrite downisnotlongerappropriate itmustbereversed Internationalstandardsrequireinventorytobevaluedatthelowerofcostormarket buttheprocessisslightlydifferentfortheU S methodofapplyingLCM InventoryEstimationTechniques EstimateinsteadoftakingphysicalinventoryLesscostlyLesstimeconsumingTwopopularmethodsofestimatingendinginventoryarethe GrossProfitMethodRetailInventoryMethod GrossProfitMethod Usefulwhen EstimatinginventoryandCOGSforinterimreports Determiningthecostofinventorylost destroyed orstolen Auditorsaretestingtheoverallreasonablenessofclientinventories Preparingbudgetsandforecasts NOTE TheGrossProfitMethodisnotacceptableforuseinannualfinancialstatements GrossProfitMethod Thismethodassumesthatthehistoricalgrossmarginratioisreasonablyconstantintheshort run EstimatetheHistoricalGrossProfitRatio GrossProfitMethod Matrix Inc usesthegrossprofitmethodtoestimateendofmonthinventory AttheendofMay thecontrollerhasthefollowingdata NetsalesforMay 1 213 000NetpurchasesforMay 728 300InventoryatMay1 237 400Estimatedgrossprofitratio 43 ofsalesEstimateInventoryatMay31 GrossProfitMethod NOTE ThekeytosuccessfullyapplyingthismethodisareliableGrossProfitRatio TheRetailInventoryMethod Thismethodwasdevelopedforretailoperationslikedepartmentstores Usesboththeretailvalueandcostofitemsforsaletocalculateacosttoretailpercentage Objective Convertendinginventoryatretailtoendinginventoryatcost TheRetailInventoryMethod RetailTerminology TheRetailInventoryMethod Weneedtoknow Salesfortheperiod Beginninginventoryatretailandcost Adjustmentstotheoriginalretailprice Netpurchasesatretailandcost RetailTerminology AnExampleoftheTerminology TheRetailInventoryMethod Matrix Inc usestheretailmethodtoestimateinventoryattheendofeachmonth ForthemonthofMaythecontrollergathersthefollowinginformation Beginninginventoryatcost 27 000 atretail 45 000Netpurchasesatcost 180 000atretail 300 000NetsalesforMay 310 000EstimatetheinventoryatMay31 TheRetailInventoryMethod TheRetailInventoryMethod RetailInventoryMethodMarkupsandMarkdowns Matrix Inc usestheretailmethodtoestimateinventoryattheendofJuly Thecontrollergathersthefollowinginformation Beginninginventoryatcost 21 000 atretail 35 000 Netpurchasesatcost 200 000 atretail 304 000 Netmarkups 8 000 Netmarkdowns 4 000 AndnetsalesforJuly 300 000 EstimateinventoryatJuly31 RetailInventoryMethodWithMarkupsandMarkdowns RetailInventoryMethodWithMarkupsandMarkdowns x TheRetailInventoryMethod NetMarkdownsareexcludedinthecomputationofthecost to retailpercentage ThisisreferredtoastheConventionalRetailMethod WecanestimateendinginventoryataverageLCMusingthecost to retailpercentageshownbelow TheRetailInventoryMethod Assumethatretailpricesofgoodsremainstableduringtheperiod EstablishaLIFObaselayer beginninginventory andadd orsubtract thelayerfromthecurrentperiod Calculatethecost to retailpercentageforbeginninginventoryandforadjustednetpurchasesfortheperiod TheLIFORetailMethod TheRetailInventoryMethod Beginninginventoryhasitsowncost to retailpercentage TheLIFORetailMethod RetailInventoryMethodLIFORetail RetailInventoryMethodLIFORetail RetailInventoryMethodLIFORetail OtherIssuesofRetailMethod Dollar ValueLIFORetail Weneedtoeliminatetheeffectofanypricechangesbeforewecomparetheendinginventorywiththebeginninginventory Dollar ValueLIFORetail ReturntoourearlierMatrixInc exampletoestimatetheendinginventoryusingdollar valueLIFOretail Recallthatendinginventorywasestimatedtobe 35 000atretail and 21 000atcostwitha60 grossprofitratio Netpurchasesatcost 200 000 atretail 304 000 Netmarkups 8 000 Netmarkdowns 4 000 NetsalesforJune 300 000 PriceindexatJune1is100andatJune30theindexis102 Dollar ValueLIFORetail ChangesinInventoryMethod Recallthatmostvoluntarychangesinaccountingprinciplesarereportedretrospectively Thismeansreportingallpreviousperiods financialstatementsasthoughthenewmethodhadbeenusedinallpriorperiods Changesininventorymethods otherthanachangetoLIFO aretreatedretrospectively ChangeToTheLIFOMethod WhenacompanyelectstochangetoLIFO itisusuallyimpossibletocalculatetheincomeeffectonprioryears Asaresult thecompanydoesnotreportthechangeretrospectively Instead theLIFOmethodisusedfromthepointofadoptionforward Adisclosurenoteisneededtoexplain a thenatureofthechange b theeffectofthechangeoncurrentyear sincomeandearningspershare and c whyretrospectiveapplicationwasimpracticable AnalyzingInventoryErrors InventoryErrors OverstatementofendinginventoryUnderstatescostofgoodssoldandOverstatespretaxincome UnderstatementofendinginventoryOverstatescostofgoodssoldandUnderstatespretaxincome InventoryErrors OverstatementofbeginninginventoryOverstatescostofgoodssoldandUnderstatespretaxincome UnderstatementofbeginninginventoryUnderstatescostofgoodssoldandOverstatespretaxincome InventoryErrors WhentheInventoryErrorisDiscoveredtheFollowingYear Ifanerrorwasmadein2010 butnotdiscovereduntil2011 the2010financialstatementswereincorrectasaresultoftheerror Theerrorshouldberetrospectivelyrestatedtoreflectthecorrectinventoryamount costofgoodssold netincome andretainedearningswhenthecomparative2011and2010financialstatementsareissuedin2011 WhentheInventoryErrorisDiscoveredSubsequenttotheFollowingYear Ifanerrorwasmadein2010 butnotdiscovereduntil2012 the2011financialstatementsalsoareretrospectivelyrestatedtoreflectthecorrectcostofgoodssoldandnetincomeeventhoughnocorrectingentryisneeded Theerrorhasself correctedandnopriorperiodadjustmentisneeded InventoryErrors OverstatementofpurchasesOverstatescostofgoodssoldandUnderstatespretaxincome UnderstatementofpurchasesUnderstatescostofgoodssoldandOverstatespretaxincome EarningsQuality Manybelievethatmanipulatingincomereducesearningsqualitybecauseitcanmaskpermanentearnings Inventorywrite downsandchangesininventorymethodaretwoadditionalinventory relatedtechniquesacompanycouldusetomanipulateearnings Appendix9 PurchaseCommitments PurchaseCommitments Purchasecommi