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Chapter 9: Q2ISTQ (page 499)

All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the: (a) definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. (b) average-cost method is prohibited under IFRS. (c) inventory basis determination for write-downs differs between GAAP and IFRS. (d) guidelines are more principles-based under IFRS than they are under GAAP.

Short Answer

Expert verified

The correct option is 鈥渂.鈥�

Step by step solution

01

LIFO cost flow assumption

(b) Under IFRS, the average cost method is prohibited, and the LIFO cost assumption is prohibited under IFRS.

02

Explanation of wrong options

(a) Under GAAP and IFRS, the definition of lower-of-cost-or-market is the same.

(c) Both GAAP and IFRS have a different basis for the write-down of inventories.

(d) Yes, IFRS is more principle-based than GAAP.

Thus, the correct option is the second one.

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Most popular questions from this chapter

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fittings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2017 \( 250,000 \) 90,000 $ 45,000 Purchases to Aug. 18, 2017 1,500,000 375,000 160,000 Sales revenue to Aug. 18, 2017 2,080,000 533,000 210,000 Exercises 479 480 Chapter 9 Inventories: Additional Valuation Issues Instructions Submit your estimate of the inventory amounts immediately preceding the fire.

Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2017, consists of products D, E, F, G, H, and I. Relevant per unit data for these products appear below. Using the LCNRV rule, determine the proper unit value for statement of financial position reporting purposes at December 31, 2017, for each of the inventory items above.

Referring to the situation in P9-2 for Garcia Home Improvement Company, consider the following expanded data at May 31, 2017. Assume Garcia uses LIFO inventory costing. Problems 483 Replacement Sales Net Realizable Normal Cost Cost Price Value Profi t Aluminum siding \( 70,000 \) 62,500 \( 64,000 \) 56,000 \( 5,100 Cedar shake siding 86,000 79,400 94,000 84,800 7,400 Louvered glass doors 112,000 124,000 186,400 168,300 18,500 Thermal windows 140,000 126,000 154,800 140,000 15,400 Total \)408,000 \(391,900 \)499,200 \(449,100 \)46,400 Instructions (a) (1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2017. (2) For the fiscal year ended May 31, 2017, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market. (b) Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories

LaTour Inc. is based in France and prepares its financial statements in accordance with IFRS. In 2017, it reported cost of goods sold of \(578 million and average inventory of \)154 million. Briefly discuss how analysis of LaTour鈥檚 inventory turnover (and comparisons to a company using GAAP) might be affected by differences in inventory accounting between IFRS and GAAP.

The financial statements of M&S are presented in Appendix E. The company鈥檚 complete annual report, including the notes to the financial statements, is available online. Instructions Refer to M&S鈥檚 financial statements and the accompanying notes to answer the following questions. (a) How does M&S value its inventories? Which inventory costing method does M&S use as a basis for reporting its inventories? (b) How does M&S report its inventories in the statement of financial position? (c) What costs does M&S include in Inventory and Cost of Sales? (d) What was M&S鈥檚 inventory turnover in 2015? What is its gross profit percentage? Evaluate M&S鈥檚 inventory turnover and its gross profit percentage.
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