The departure from cost when the lower of cost or market rule is applied is justified because the loss of utility is charged against revenues in the period in which the loss occurs.
True, The lower of cost or market rule charges the loss of utility against revenues in the period when the loss occurs, not in the period of sale.
The direct method of recording inventory at market under the lower of cost or market rule establishes a separate contra asset account and a loss account to record the write-off.
False, The indirect method uses a separate contra account and loss account to record the write-off. The direct method substitutes the lower market value figure for cost when valuing inventory.
The term market in the phrase "lower of cost or market" generally means the:
replacement cost, The term market generally means the cost to replace the inventory item.
The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
future utility will be less than their cost, To preclude overstating assets, the lower of cost or market (future utility) is used for inventory valuation.
In no case can "market" in the lower-of-cost-or-market rule be more than:
mated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, Market cannot be greater than the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
Inventory may be recorded at net realizable value if (GAAP)
there is a controlled market with a quoted price.
the inventory consists of precious metals or agricultural products.
there are no significant costs of disposal.
all of these.
A basket purchase is a group of varying units bought in a single lump-sum purchase.
True, The cost of a basket purchase is allocated among the units on the basis of relative sales value.
When is the relative sales value method used?
When purchasing a group of varying units.
The relative sales value method is used throughout the:
Petroleum, The petroleum industry uses the relative sales value method extensively. because of the many products and by products obtained from a barrel of crude oil.
If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,
this fact must be disclosed.
Losses on noncancelable purchase contracts should be recognized:
in the period a decline in market price occurs.
An estimated loss on purchase commitments is reported:
under Other Expenses and Losses.
The gross profit method uses the current period's gross profit percentage in determining the mark-up.
False, The gross profit method uses prior period records and company policies to determine mark-up.
IFRS uses a floor to determine market for inventory valuation.
FALSE
The gross profit method of estimating ending inventory is not acceptable for:
annual financial statements, because it is an estimated ending inventory
Which statement is true about the retail inventory method?
particularly useful for any type of interim report, because such report usually need a fairly quick and reliable measure of the inventory. also insurance adjusters, it also acts as a control device. Finally the retail inventory method expedites the physcal inventory count at the end of the year.
Which of the following statements about IFRS for inventory accounting is not true?
IFRS defines market value as replacement cost subject to the constraints of a ceiling and floor. IFRS defines market value as net realizable value without regard to the ceiling and floor constraints required by GAAP.
Which one of the following is deducted in computing the cost-to-retail ratio?
Abnormal shortages.
Which of the following statements is true regarding IFRS and inventories?
With respect to inventories, IFRS defines market as net realizable value.
Which of the following is not a required inventory disclosure under GAAP?
Significant or unusual inventory financing arrangements.
The inventory costing methods employed.
All of the above are required disclosures.
The composition of the inventory..
Which of the following is not permitted under IFRS?
The use of the LIFO cost flow assumption.
IFRS ONLY PERMITS FIFO AND AVERAGE COSTS
Which of the following is a major assumption of the LIFO retail method?
Markups and markdowns apply to goods purchased during the period and not to beginning inventory.