Concept explainers
International accounting standards C1 C2 P2
Answer each of the following questions related to international accounting standards.
a. Explain how the accounting for items and costs making up merchandise inventory is different between IFRS and U.S. GAAP.
b. Can companies reporting under IFRS apply a cost flow assumption in assigning costs to inventory? If yes, identify at least two acceptable cost flow assumptions.
c. Both IFRS and U.S. GAAP apply the lower of cost or market method for reporting inventory values. If inventory is written down from applying the lower of cost or market method, explain in general terms how IFRS and US. GAAP differ in accounting for any subsequent period reversal of that reported decline in inventory value.
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FINANCIAL ACCT-CONNECT
- Identify any differences between U.S. GAAP and International Financial Reporting Standards in the methods allowed to value inventory.arrow_forwardWhen following U.S. GAAP, the lower-of-cost-or-market rule for inventory requires a firm to report ________. Group of answer choices the inventory at cost if the market value of inventory is higher than its cost basis the inventory at the higher amount of cost or market on the balance sheet the difference between the cost basis and the market-based measure of inventory as a gain on the income statement the inventory at cost if the market value of inventory is lower than its cost basisarrow_forwardExplain how the accounting for merchandise purchases and sales is different between accounting under IFRS versus U.S. GAAP.arrow_forward
- If 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_forwardIdentify any differences between U.S. GAAP and IFRS when applying the lower of cost and net realizable value rule to inventory valuation.arrow_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_forward
- Which of the following should not be taken into account when determining the cost of inventory? a. storage costs of part- finished goodsb. trade discountsc. recoverable purchase taxesd. import duties on shipping of inventoryarrow_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_forward1. Which of the following is a type of inventory a. All of the above b. Work in Progress c. MRO d. Raw material 2. Global markets becomes a barrier to global supply chains because of the trade agreements in place. True or Falsearrow_forward
- 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_forwardWhich inventory cost flow assumption does IFRS not allow? a. Specific identification. b. FIFO. c. LIFO. d. Average cost.arrow_forwardWhich 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 IVarrow_forward
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