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Accounting for Inventory Under Ifrs and Us Gaap

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Accounting for inventory under IFRS and U.S. GAAP

ABSTRACT
U.S. General Accepted Accounting Standards (U.S. GAAP) and International Financial Reported Standards (IFRS) both give guidance for inventory valuation. This study will give several examples, compare cost flow assumptions and inventory valuation under U.S. GAAP and IFRS, and indicate the possible influences to reported companies and financial information users.
INTRODUCTION
The U.S. Securities and Exchange Commission (SEC) continues to move forward in its proposed plans to replace U.S. GAAP for U.S. public companies with IFRS. Inventory valuation is important, because inventory is a crucial element not only in the computation of profit, but also in the valuation of assets for balance sheet purposes. Unfortunately, inventory values sometimes are manipulated by management in order to create a more favorable impression.
In the following sections, I introduced several differences between U.S. GAAP and IFRS. I also analysis the possible reasons of information manipulation and influence. In section one and section two respectively I will talk about differences in cost flow assumptions and inventory valuation under both methods. I. COST FLOW ASSUMPTIONS
Companies typically purchase merchandise at several different prices. Ending inventory equals the quantity on hand multiply the unit acquisition price. If a company use historical cost to determine the cost of inventory and it purchases inventory at different unit prices, it needs to make an arbitrary choice as to the assumed unit price, because a specific identification of the given items sold and unsold proves both expensive and impossible to achieve. Three major assumptions are First-in, first-out (FIFO), last-in, first-out (LIFO) and weighted average cost. Although the attribute being calculated is historical cost in all methods, the result is arbitrary

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