西方中级会计学8课件

Inventories:

AdditionalIssues9McGraw-Hill/IrwinCopyright©2011bytheMcGraw-HillCompanies,Inc.Allrightsreserved.Reporting--LowerofCostorMarketInventoriesarevaluedatthelower-of-cost-ormarket.LCMisadeparturefromhistoricalcost.Themethodcauseslossestoberecognizedintheperiodthevalueofinventorydeclinesbelowitscostratherthanintheperiodthatthegoodsultimatelyaresold.DeterminingMarketValueMarketShouldNotExceedNetRealizableValue(Ceiling)MarketShouldNotBeLessThanNetRealizableValuelessNormalProfit(Floor)GAAPdefines“marketvalue”intermsofcurrentreplacementcost.Marketshouldnotbegreaterthanthe“ceiling”orlessthanthe“floor.”DeterminingMarketValueCeiling

NRVReplacement

CostNRV–NP

FloorDesignated

MarketCost

NotMoreThanNotLessThanOrStep1

DetermineDesignatedMarketStep2

CompareDesignatedMarketwithCostLowerofCost

OrMarketLowerofCostorMarketAnitemininventoryhasahistoricalcostof$20perunit.Atyear-endwegatherthefollowingperunitinformation:currentreplacementcost=$21.50sellingprice=$30costtocompleteanddispose=$4normalprofitmarginof=$5

HowwouldwevaluethisitemintheBalanceSheet?LowerofCostorMarketReplacementCost=$21.50$21.50Designated

Market?Historicalcostof$20.00islessthandesignatedmarketof$21.50,sothisinventoryitemwillbevaluedatcostof$20.00.1.ApplyLCMtoeachindividualitemininventory.2.ApplyLCMtologicalinventory

categories.3.ApplyLCMtotheentireinventoryasagroup.ApplyingLowerofCostorMarketLowerofcostormarketcanbeapplied3differentways.AdjustingCosttoMarketRecordtheLossasaSeparateItemintheIncomeStatement

Lossonwrite-downofinventoryXX

InventoryXX

RecordtheLossaspartofCostofGoodsSold.

CostofgoodssoldXX

InventoryXXU.S.GAAPvs.IFRSLCMrequiresselectingmarketfromreplacementcost,netrealizablevalueorNRVreducedbythenormalprofitmargin.DesignatedmarketiscomparedtohistoricalcosttodetermineLCM.IASNo.2,statesthatthedesignatedmarketwillalwaysbenetrealizablevalue.Internationalstandardsrequireinventorytobevaluedatthelowerofcostormarket,buttheprocessisslightlydifferentfortheU.S.methodofapplyingLCM.U.S.GAAPvs.IFRSUnderU.S.GAAP,theLCMrulecanbeappliedtoindividualitems,logicalinventorycategories,ortheentireinventory.ReversalsarenotpermittedunderGAAP.TheLCMassessmentusuallyisappliedtoindividualitems,althoughusinglogicalinventorycategoriesisallowedundercertaincircumstances.Ifaninventorywrite-downisnotlongerappropriate,itmustbereversed.Internationalstandardsrequireinventorytobevaluedatthelowerofcostormarket,buttheprocessisslightlydifferentfortheU.S.methodofapplyingLCM.InventoryEstimationTechniquesEstimateinsteadoftakingphysicalinventoryLesscostlyLesstimeconsumingTwopopularmethodsofestimatingendinginventoryarethe...GrossProfitMethodRetailInventoryMethodGrossProfitMethodUsefulwhen...EstimatinginventoryandCOGSforinterimreports.Determiningthecostofinventorylost,destroyed,orstolen.Auditorsaretestingtheoverallreasonablenessofclientinventories.Preparingbudgetsandforecasts.NOTE:TheGrossProfitMethodisnotacceptable

foruseinannualfinancialstatements.GrossProfitMethodThismethodassumesthatthehistoricalgrossmarginratioisreasonablyconstantintheshort-run.BeginningInventory

(fromaccountingrecords)Plus:Netpurchases

(fromaccountingrecords)Goodsavailableforsale

(calculated)Less:Costofgoodssold

(estimated)Endinginventory

(estimated)

EstimatetheHistoricalGrossProfitRatioGrossProfitMethodMatrix,Inc.usesthegrossprofitmethodtoestimateendofmonthinventory.AttheendofMay,thecontrollerhasthefollowingdata:

NetsalesforMay=$1,213,000NetpurchasesforMay=$728,300InventoryatMay1=$237,400Estimatedgrossprofitratio=43%ofsales

EstimateInventoryatMay31.GrossProfitMethodNOTE:ThekeytosuccessfullyapplyingthismethodisareliableGrossProfitRatio.TheRetailInventoryMethodThismethodwasdevelopedforretailoperationslikedepartmentstores.Usesboththeretailvalueandcostofitemsforsaletocalculateacosttoretailpercentage.Objective:Convertendinginventoryatretailtoendinginventoryatcost.TheRetailInventoryMethodTerm

MeaningInitialmarkup

Originalamountofmarkupfromcosttosellingprice.Additionalmarkup

Increaseinsellingpricesubsequenttoinitialmarkup.Markupcancellation

Eliminationofanadditionalmarkup.Markdown

Reductioninsellingpricebelowtheoriginalsellingprice.Markdowncancellation

Eliminationofamarkdown.RetailTerminologyTheRetailInventoryMethodWeneedtoknow...Salesfortheperiod.Beginninginventoryatretailandcost.Adjustmentstotheoriginalretailprice.Netpurchasesatretailandcost.RetailTerminologyAnExampleoftheTerminologyTheRetailInventoryMethodMatrix,Inc.usestheretailmethodtoestimateinventoryattheendofeachmonth.ForthemonthofMaythecontrollergathersthefollowinginformation:

Beginninginventoryatcost$27,000,atretail$45,000Netpurchasesatcost$180,000atretail$300,000NetsalesforMay$310,000

EstimatetheinventoryatMay31.TheRetailInventoryMethodTheRetailInventoryMethodx×RetailInventoryMethod

MarkupsandMarkdownsMatrix,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.RetailInventoryMethod

WithMarkupsandMarkdownsRetailInventoryMethod

WithMarkupsandMarkdownsxTheRetailInventoryMethodNetMarkdownsare

excluded

inthecomputationofthecost-to-retailpercentage.Thisisreferredtoasthe

ConventionalRetailMethodWecanestimateendinginventoryataverageLCMusingthecost-to-retailpercentageshownbelow:TheRetailInventoryMethodAssumethatretailpricesofgoodsremainstableduringtheperiod.EstablishaLIFObaselayer(beginninginventory)andadd(orsubtract)thelayerfromthecurrentperiod.Calculatethecost-to-retailpercentageforbeginninginventoryandforadjustednetpurchasesfortheperiod.TheLIFORetailMethodTheRetailInventoryMethodBeginninginventoryhasitsowncost-to-retailpercentage.TheLIFORetailMethod

LIFOCost-=NetPurchasesto-Retail%RetailValue(NetPurchases

+NetMarkups-NetMarkdowns)

RetailInventoryMethod

LIFORetailRetailInventoryMethod

LIFORetailRetailInventoryMethod

LIFORetailOtherIssuesofRetailMethodElement

TreatmentBeforecalculatingthecost-to-retailpercentage

Freight-in

AddedtothecostcolumnPurchasereturns

DeductedinboththecostandretailcolumnsPurchasediscountstaken

DeductedinthecostcolumnAbnormalshortage,spoilage,ortheft

DeductedinboththecostandretailcolumnsAftercalculatingthecost-to-retainpercentage

Normalshortage,spoilage,ortheft

DeductedintheretailcolumnEmployeediscounts

AddedtonetsalesDollar-ValueLIFORetailWeneedtoeliminatetheeffectofanypricechangesbeforewecomparetheendinginventorywiththebeginninginventory.Dollar-ValueLIFORetailReturntoourearlierMatrixInc.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-ValueLIFORetailChangesinInventoryMethodRecallthatmostvoluntarychangesinaccountingprinciplesarereportedretrospectively.Thismeansreportingallpreviousperiods’financialstatementsasthoughthenewmethodhadbeenusedinallpriorperiods.Changesininventorymethods,otherthanachangetoLIFO,aretreatedretrospectively.ChangeToTheLIFOMethodWhenacompanyelectstochangetoLIFO,itisusuallyimpossibletocalculatetheincomeeffectonprioryears.Asaresult,thecompanydoesnotreportthechangeretrospectively.Instead,theLIFOmethodisusedfromthepointofadoptionforward.Adisclosurenoteisneededtoexplain(a)the

natureofthechange;(b)theeffectofthe

changeoncurrentyear’sincomeand

earningspershare,and(c)whyretrospectiveapplicationwasimpracticable.AnalyzingInventoryErrorsInventoryErrorsOverstatementofendinginventoryUnderstatescostofgoodssoldandOverstatespretaxincome.UnderstatementofendinginventoryOverstatescostofgoodssoldandUnderstatespretaxincome.InventoryErrorsOverstatementofbeginninginventoryOverstatescostofgoodssoldandUnderstatespretaxincome.UnderstatementofbeginninginventoryUnderstatescostofgoodssoldandOverstatespretaxincome.InventoryErrorsWhentheInventoryErrorisDiscoveredtheFollowingYearIfanerrorwasmadein2010,butnotdiscovereduntil2011,the2010financialstatementswereincorrectasaresultoftheerror.Theerrorshouldberetrospectivelyrestatedtoreflectthecorrectinventoryamount,costofgoodssold,netincome,andretainedearningswhenthecomparative2011and2010financialstatementsareissuedin2011.WhentheInventoryErrorisDiscoveredSubsequent

totheFollowingYearIfanerrorwasmadein2010,butnotdiscovereduntil2012,the2011financialstatementsalsoareretrospectivelyrestatedtoreflectthecorrectcostofgoodssoldandnetincomeeventhoughnocorrectingentryisneeded.Theerrorhasself-correctedandnopriorperiodadjustmentisneeded.InventoryErrorsOverstatementofpurchasesOverstatescostofgoodssoldandUnderstatespretaxincome.UnderstatementofpurchasesUnderstatescostofgoodssoldandOverstatespretaxincome.EarningsQualityManybelievethatmanipulatingincomereducesearningsqualitybecauseitcanmaskpermanentearnings.Inventorywrite-downsandchangesininventorymethodaretwoadditionalinventory-relatedtechniquesacompanycouldusetomanipulateearnings.

Appendix9Purchase

CommitmentsPurchaseCommitmentsPurchasecommitmentsarecontractsthatobligateacompanytopurchaseaspecifiedamountofmerchandiseorrawmaterialsatspecifiedpricesonorbeforespecifieddates.InJuly2011,theLassiterCompany.signedtwopurchasecommitments.ThefirstrequiresLassitertopurchaseinventoryfor$500,000by

November15,2011.TheinventoryispurchasedonNovember