Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 2BCC
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?
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Students have asked these similar questions
Which of the following statements is not incorrect?
I. PAS 2 requires the use of the Allowance Method in accounting for inventory write-down.
II. There shall always be an allowance for inventory write-down if the net realizable value of inventories is lower than its cost.
III. Regardless of what method the company uses in accounting for inventory write-down, the cost of goods sold must always be the same
IV. A company may recognize a gain on reversal of inventory write-down even if the cost of inventory exceeds its net realizable value.
a. I and II
b. None of these
c. II and III
d. III and IV
e. I and IV
1. U.S. public companies using LIFO also report the amount that inventory wouldincrease (oroccasionally decrease) if the company had instead used FIFO.
See file please.
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.
Chapter 10 Solutions
Intermediate Accounting (2nd Edition)
Ch. 10 - How is inventory tracked under a perpetual...Ch. 10 - Barbara Wight is Chief Financial Officer at Taylor...Ch. 10 - What costs should be included in the unit cost of...Ch. 10 - When does the inventory allocation problem arise?Ch. 10 - Explain the difference between the FIFO method of...Ch. 10 - Which method of inventory results in an inventory...Ch. 10 - If unit costs are rising and inventory levels are...Ch. 10 - How can financial statements be converted from the...Ch. 10 - Explain the unit of measure under the dollar-value...Ch. 10 - What do firms use as the market value when...
Ch. 10 - Do U.S. GAAP and IFRS treat inventory write-downs...Ch. 10 - Under IFRS, how do firms determine...Ch. 10 - How does the conventional retail method...Ch. 10 - Why would a company use the gross profit method to...Ch. 10 - How are required LIFO disclosures used to compute...Ch. 10 - How does a company build LIFO layers under the...Ch. 10 - Giddens Company adopted the dollar-value UFO...Ch. 10 - The Loyd Company lad 150 units of product Omega on...Ch. 10 - Simmons, Inc. uses the lower-of-cost-or-market...Ch. 10 - Simmons, Inc. uses the lower-of-cost-or-market...Ch. 10 - The Loyd Company had 150 units of product Omega on...Ch. 10 - The Loyd Company had 150 units of product Omega on...Ch. 10 - On March 1, Year 1, LuxWear me had beginning...Ch. 10 - Types of Manufacturing Inventory. Complete the...Ch. 10 - Periodic Inventory System. Emmy Company uses a...Ch. 10 - Prob. 10.3BECh. 10 - Prob. 10.4BECh. 10 - FIFO, Perpetual Basis. Spider incorporated...Ch. 10 - LIFO, Perpetual Basis. Using the information...Ch. 10 - Prob. 10.7BECh. 10 - LIFO Reserve. Best Stores is considering a change...Ch. 10 - LIFO. Perpetual Basis. Source Enterprises reports...Ch. 10 - LIFO Liquidation. Using the information provided...Ch. 10 - Prob. 10.11BECh. 10 - Dollar-Value LIFO, Conversion to FIFO. Using the...Ch. 10 - Lower of Cost or Market. Count Clothing Company...Ch. 10 - Lower of Cost or Market. Using the information in...Ch. 10 - Lower of Cost or Market, IFRS. Using the...Ch. 10 - Prob. 10.16BECh. 10 - Prob. 10.17BECh. 10 - Lower of Cost or Market. Sarat Boot Company...Ch. 10 - Prob. 10.19BECh. 10 - Prob. 10.20BECh. 10 - Prob. 10.21BECh. 10 - Gross Profit Method. Sammi Company needs to...Ch. 10 - Prob. 10.23BECh. 10 - LIFO Retail Inventory Method. Complete the...Ch. 10 - LIFO Retail Inventory Method. Complete the...Ch. 10 - Moving Average, FIFO, LIFO. Arthur Lloyd...Ch. 10 - Moving Average, FIFO, LIFO, Presentation, and...Ch. 10 - Moving Average, FIFO, LIFO. Zoola, Inc. provided...Ch. 10 - Prob. 10.4ECh. 10 - LIFO, Conversion to FIFO. Inventory transactions...Ch. 10 - LIFO. Burke Company uses the LIFO perpetual method...Ch. 10 - Prob. 10.7ECh. 10 - Dollar-Value LIFO, LIFO Reserve. CWB Teleconcepts,...Ch. 10 - Dollar-Value LIFO, No Liquidation. Joe the Grocer...Ch. 10 - Prob. 10.10ECh. 10 - Lower of Cost or Market. All-Kinds-of-Cases...Ch. 10 - Prob. 10.12ECh. 10 - Lower of Cost or Market. Printmaster Distributors...Ch. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Conventional Retail Inventory Method. Melvin...Ch. 10 - Gross Profit Method. A tsunami destroyed Kyoto...Ch. 10 - Prob. 10.18ECh. 10 - Prob. 10.19ECh. 10 - Prob. 10.20ECh. 10 - Dollar-Value LIFO Retail Inventory Method....Ch. 10 - Moving Average, FIFO, LIFO. Morocco Imports...Ch. 10 - Prob. 10.2PCh. 10 - LIFO, Conversion to FIFO. The Outsider Company,...Ch. 10 - Dollar-Value LIFO. The Happenings Company adopted...Ch. 10 - Dollar-Value LIFO. No Liquidation. Nat's Toy...Ch. 10 - Dollar-Value LIFO, LIFO Liquidation. The following...Ch. 10 - Dollar-Value LIFO. LIFO Liquidation. Silvio's...Ch. 10 - Lower of Cost or Market. Framingdale Factories....Ch. 10 - Lower of Cost or Market. O'Sullivan Corporation...Ch. 10 - Conventional Retail Inventory Method. John Stevens...Ch. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - Basic Retail Inventory Method and Conventional...Ch. 10 - Basic Retail Inventory Method and Conventional...Ch. 10 - Prob. 10.15PCh. 10 - Conventional Retail Inventory Method, Lower of...Ch. 10 - Prob. 1JCCh. 10 - Judgment Case 2: Inventory Costing BBS is a...Ch. 10 - Judgment Case 3: Lower of Cost or Market KR...Ch. 10 - Prob. 1FSCCh. 10 - Prob. 2FSCCh. 10 - Prob. 1SSCCh. 10 - Prob. 2SSCCh. 10 - Surfing the Standards Case 3: Time Shares Treasure...Ch. 10 - Surfing the Standards Case 4: Lower of Cost or...Ch. 10 - Prob. 1BCCCh. 10 - Basis for Conclusions Case 2: The Lower of Cost or...
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