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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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IFRS Activity 3

Under U.S. GAAP, LIFO is an acceptable inventory method. Financial statement information for three companies that use LIFO follows. All table numbers are in millions of dollars.

Chapter MJ, Problem 3IFRS, IFRS Activity 3 Under U.S. GAAP, LIFO is an acceptable inventory method. Financial statement , example  1

*Autos and trucks only

Assume that these companies adopted IFRS and thus were required to use FIFO rather than LIFO.

  1. a. Prepare a table with the following columns:

Chapter MJ, Problem 3IFRS, IFRS Activity 3 Under U.S. GAAP, LIFO is an acceptable inventory method. Financial statement , example  2

  1. (1) Difference between FIFO and LIFO inventory valuation
  2. (2) Revised IFRS net income using FIFO
  3. (3) Difference between FIFO and LIFO inventory valuation as a percent of total current assets (rounded to the nearest whole percent)
  4. (4) Revised IFRS net income as a percent of the reported net income (rounded to the nearest whole percent)
  5. b. Complete the table for the three companies.
  6. c. For which company would a change to IFRS for inventory valuation have the largest percentage impact on total current assets (Col. 3)?
  7. d. For which company would a change to IFRS for inventory valuation have the largest percentage impact on net income (Col. 4)?
  8. e. Why might Kroger have a negative impact on net income from using LIFO, while the other two companies have a positive impact on net income from using LIFO?

(a)

To determine

Draft a table with the columns given in the problem.

Explanation

International Financial Reporting Standards (IFRS): IFRS are a set of international accounting standards which are framed, approved, and published by International Accounting Standards Board (IASB) for the preparation and disclosure of international financial reports.

Generally Accepted Accounting Principles (GAAP): These are the guidelines necessary to create accounting principles for the implementation of financial information reporting in the Country U.

First-in-First-Out(FIFO): In this method, items purchased initially are sold first. So, the value of the ending inventory consists the recent cost for the remaining unsold items.

Last-in-First-Out(LIFO): In this method, items purchased recently are sold first. So, the value of the ending inventory consists the initial cost for the remaining unsold items.

Table is prepared as follows (amounts in millions of dollars):

 FIFO less LIFOIFRS Net IncomeFIFO less LIFOTotal 

(b)

To determine

Complete the table prepared in Part (a).

(c)

To determine

Indicate the company which would have the highest impact on total current assets due to change in inventory valuation method, if the company uses IFRS instead of GAAP

(d)

To determine

Indicate the company which would have the highest impact on net income due to change in inventory valuation method, if the company uses IFRS instead of GAAP

(e)

To determine

Discuss the reasons for negative impact on net income if LIFO is used rather than FIFO.

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