投资学 第八章

An adjusting entry for the loss is not required.
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Lower of Cost or Market
Direct Method—December 31, 2005 To close beginning inventory: Income Summary Inventory To record ending inventory: Inventory Income Summary 22,000 22,000 28,000 28000
6
Lower of Cost or Market
A company’s unit of inventory has the following characteristics: Selling price $165 Packaging cost 10 Transportation cost 15 Profit margin 40
Market $20,000 22,000 28,000
Assume the company uses a periodic system.
17
Lower of Cost or Market
Direct Method—December 31, 2004 To close beginning inventory: Income Summary Inventory To record ending inventory: Inventory Income Summary 20,000 20,000 22,000 22,000
Inventory Category A: Item 1 Item 2 Cost Market Individual Items $ 700 1,200
$1,000 $ 700 1,200 1,300 $2,200 Loss $2,000 Category B: recognition, Item 3 $2,000 $600 $2,400 Item 4 2,500 2,200 $4,600 $4,500 Total $6,700 $6,600 Inventory valuation
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Chapter 8
Inventories: Special Valuation Issues
An electronic presentation by Douglas Cloud Pepperdine University
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Objectives
1. Understand the lower of cost or market method. 2. Explain the conceptual issues regarding the lower of cost or market method. 3. Understand purchase obligations and product financing arrangements. 4. Explain the valuation of inventory above cost. 5. Use the gross profit method.
Continued
3
Objectives
6. Understand the retail inventory method. 7. Explain the conceptual issues regarding the retail inventory method. 8. Understand the dollar-value LIFO retail method. 9. Understand the effects of inventory errors on the financial statements.
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Purchase Obligations and Product Financing Arrangements
7
Lower of Cost or Market
Case 1
Selling price $165 Cost of completion (10 ) Transportation cost (15 ) Ceiling (NRV) $140
Ceiling (NRV) Normal profit Floor
2,000 2,200
$6,100
14
Lower of Cost or Market
Inventory Category A: Item 1 Item 2 Cost Market Category
$1,000 $ 700 1,300 1,200 $2,200 Loss $2,000 Category B: recognition, Item 3 $2,000 $200 $2,400 Item 4 2,500 2,200 $4,500 $4,600 Total $6,700 $6,600 Inventory valuation
Market $120 LCM is the cost of $110
9
Lower of Cost or Market
Case 2
Selling price $165 Cost of completion (10 ) Transportation cost (15 ) Ceiling (NRV) $140
20
Lower of Cost or Market
Allowance Method—December 31, 2005 Method— To close beginning inventory: Income Summary 25,000 Inventory 25,000 To record ending inventory: Inventory 30,000 Income Summary 30,000 To record inventory at market: Allowance to Reduce Inventory to Market 1,000 Loss Recovery Due to Market Valuation 1,000
Cost $110
Current Current Replacement Replacement Cost, $150 Cost, $150 Ceiling (NRV) Normal profit Floor $140 (40 ) $100
What= $140 Mkt. is market? LCM is the cost of $110
$6,600 $6,600
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Lower of Cost or Market
Recording the Reduction of Inventory to Cost
December 31, 2003 December 31, 2004 December 31, 2005
Cost $20,000 25,000 30,000
Cost $110
Current Replacement Cost, $105 Ceiling (NRV) Normal profit Floor $140 (40 ) $100
What $105 Mkt. =is market? LCM is the market of $105
13
Lower of Cost or Market
$2,000
4,er of Cost or Market
Inventory Category A: Item 1 Item 2 Cost Market Total
$1,000 $ 700 1,300 1,200 $2,200 Loss $2,000 Category B: recognition, Item 3 $2,000 $100 $2,400 Item 4 2,500 2,200 $4,500 $4,600 Total $6,700 $6,600 Inventory valuation
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Purchase Obligations and Product Financing Arrangements
A company entered into a noncancelable commitment to purchase inventory at a fixed price of $500,000 and the market price at the end of the year is $450,000.
5
Lower of Cost or Market
Selection of Market Value Ceiling (Net Realizable Value) Replacement Cost Floor (Net Realizable Value Normal Profit) Comparison to Cost Use lower of (a) cost or (b) selected market value Reporting the Results Balance sheet: Inventory at LCM Income statement: Loss (if recognized)
An adjusting entry for the loss is not required.
19
Lower of Cost or Market
Allowance Method—December 31, 2004 To close beginning inventory: Income Summary 20,000 Inventory 20,000 To record ending inventory: Inventory 25,000 Income Summary 25,000 To record inventory at market: Loss Due to Market Valuation 3,000 Allow. to Reduce Inventory to Market 3,000