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5 Cards in this Set
- Front
- Back
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Applying Lower of Cost and NRV |
Can be applied to individual inventory items, logical inventory items, logical inventory categories, or the entire inventory. |
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Adjusting cost to NRV |
If common place, include losses in COGS. If significant and unusual, GAAP requires expressive disclosure, so consider including loss in separate line item such as "loss on write-down of inventory," or disclosing it in a disclosure note. Reduced inventory because the new cost basis and can't be written back up. |
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IFRS lower of cost and NRV |
Both IFRS and GAAP value inventory at lower of cost or NRV. Differences: 1. IFRS allows reversal of write-downs, while GAAP doesn't. 2. Under GAAP, lower of cost and NRV can be applied to individual items, logical categories, or the entire inventory, whereas under IFRS, it is usually only applied to individual items; however, it is applied to logical categories under certain circumstances. |
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Word of Caution |
The key to obtaining good estimates is the reliability of the gross profit ratio. all available information should be used to make adjustments Blanket ratio should not be applied in situations of different products having different markups. Inventory should be grouped in pools of products with similar gross profit relationships, instead of applying gross profit ratio to entire inventory Cost flow assumption should be considered it doesn't consider possible theft or spoilage of inventory. which requires an adjustment. |
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Markup on cost |
Gross profit stated as a percentage of cost instead of sales. |
