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Chapter 9: Q5IFRS. (page 500)

In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Sales price 14.80 19.20 15.20 10.40 17.80 Estimated cost to complete 1.50 1.90 1.65 .80 1.00 Estimated cost to sell .50 .70 .55 .40 .60

Short Answer

Expert verified

The cost of inventory in case 1 equals $12.80, case 2 equals $16.10, case 3 equals $13, case 4 equals $9.20, and case 5 equals $15.90.

Step by step solution

01

Calculation of net realizable value

The net realizable value is calculated as follows:

Case1

Case 2

Case 3

Case 4

Case 5

Selling Price

$14.80

$19.20

$15.20

$10.40

$17.80

Less: Estimated cost to complete

1.50

1.90

1.65

0.80

1.00

Less: Estimated cost to sell

0.50

0.70

0.55

0.40

0.60

Net realizable value

$12.80

$16.60

$13

$9.20

$16.20

02

Calculation of inventory price

The inventory price is calculated as follows:

Case1

Case 2

Case 3

Case 4

Case 5

Cost

$15.90

$16.10

$15.90

$15.90

$15.90

Net realizable value

12.80

16.60

13

9.20

16.20

LCNRV

$12.80

$16.10

$13

$9.20

$15.90

Thus, the cost of inventory from Case 1 to case 5 equals $12.80, $16.10, $13, $9.20, and $15.90, respectively.

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Most popular questions from this chapter

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.

Referring to the inventory data for Sedato Company in E9-3, assume that Sedato follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profi t 1320 1,200 \(3.20 \)3.00 \(4.50 \)0.35 $1.25 1333 900 2.70 2.30 3.50 0.50 0.50 1426 800 4.50 3.70 5.00 0.40 1.00 1437 1,000 3.60 3.10 3.20 0.25 0.90 1510 700 2.25 2.00 3.25 0.80 0.60 1522 500 3.00 2.70 3.80 0.40 0.50 1573 3,000 1.80 1.60 2.50 0.75 0.50 1626 1,000 4.70 5.20 6.00 0.50 1.00 Instructions From the information above, determine the amount of Sedato Company inventory

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish鈥檚 financials? (a) During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (b) During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO. (d) During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory methodare used as compared to GAAP and LIFO.

Question:Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost togross profit percentages based on sales price: 25% and 331 /3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 331 /3% and 60%.

Question:What are the major uses of the gross profit method?
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