Client Understanding Paper

The FASB ASC 330 Inventory provides primary authoritative guidance for the accounting for inventory. The predecessor literature is Accounting Research Bulletins (ARB) No.43 Chapter 4, paragraph 4 (Issued June, 1953) and Statement of Financial Accounting Standard (FAS) NO.151 Inventory cost- an amendment of ARB No.43, Chapter 4 (Issued November, 2004).

Assets are to be recorded and valued based of the type of asset there are.

In 1973 the Financial Accounting Standards Board (FASB) was established to set the financial accounting standards in the United States of America for nongovernmental entities. These standards are collectively called U.S. Generally accepted Accounting Principles, or U.S. GAAP. The Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants acknowledge the authority of these standards (FASB, n.d). A “proven, independent due process” is used to collect the viewpoints of the financial statements prepares and users for the constant improvement of these standards. An Accounting Status Update(ASU) is not an authoritative source however documents the amendments to communicate the changes in the FASB Codification for a user to understand the reason and future of those changes (FASB, n.d).

(TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the Average Cost method is applied (15 points) and (2) provide an example of the application of this method. (10 points) (Points : 25)

How is inventory valued? Which inventory valuation method is most popular and why? What impact on the financial reports can the selection of an inventory valuation method have?

When financing the construction of a building, the interest should be capitalized as part of the cost of the building. This would more adequately match revenues and expenses in the period in which they are earned. When the building is being used and the cost thereof is being allocated via depreciation, the expenses would adequately reflect the cost of the building and include a portion of the interest that was incurred as the building was being constructed. If the interest is not

Before abandonment the asset should be depreciated so at the time of disposal the carrying value equals the salvage value, but not less than zero. Assets that are distributed to owners or exchanged for a similar productive asset must recognize an impairment loss if the carrying amount exceeds fair value at the time of disposal. Assets that are going to be disposed of by sale must be classified as such and the gain or loss it recognizes must be disclosed on the income statement or in the notes. For assets disposed of by sale, the amount of cash received is compared the asset's book value, which is calculated by subtracting accumulated depreciation from the cost of the asset. A gain is recorded if the proceeds of the sale are greater than book value. A loss is recorded if the proceeds of the sale are less than the book value (FASB, 2014).

Under GAAP when a company disposes of a long-term asset at a cost different from the book value of the asset the difference will require an adjustment to net income on the cash flow statement. The difference between the disposal price and book value is considered either a gain or loss. For example, if a vehicle has a cost of $20,000 less accumulated depreciation of $17,000 the book value will be the difference equating to $3,000. If the vehicle is disposed of for $3,500 the difference between the book value and disposal amount equates to $500. This $500 is recognized as a gain on the sale of the asset and increases net income. Using the same example if the asset sold for $2,000 a loss of

The various methods of inventory valuation that could be used in any organization Are classified differently. The common three inventory valuation methods are Last in First out (LIFO), weighted average, and First in First out (FIFO) (McVay, Kennedy, & Fullerton, 2013).

the valuation of non-marketable equity investments and the determination of other-than-temporary impairments, which impact gains (losses) on equity investments, net when we record impairments;

13. FIFO, weighted average, and LIFO methods are often used instead of specific identification for inventory valuation purposes. Compare these methods with the specific identification method, discussing the theoretical propriety of each method in the determination of income and asset valuation.

The inventory method I will advise LONZO SUPERMARKET which is a merchant near where I live is the FIFO (first-in first-out). The method is a cost flow assumption, and it states that the first goods purchase should also be the first goods sold. Since this method closely matches the actual flows of inventories, theoretically, it is the correct valuation inventory method. I will emphasis on this method because goods sold in super markets can easily become obsolescence. Therefore using this method will avoid losing many inventories because of obsolescence. Under this method, first goods bought are first goods to be sold and vice versa. The result is that the remaining items in the inventory are being accounted for at the most recently incurred

When calculating the total cost of ownership of an asset, the life cycle of the asset must be taken into consideration. During that life cycle, the asset will start to depreciate. The depreciation expense varies from asset to asset. The value of the asset is reported lower and lower

“Property, plant and equipment is depreciated over its useful life taking into account residual values, where appropriate. Assessments of useful lives and residual values are performed annually after considering factors such as technological innovation, maintenance programs, relevant market information, manner of recovery, and management consideration” (Marketresearch.com, 2015).

These assets are stated at cost less accumulated depreciation and impairment loss (if any) except