FIFO and LIFO Accounting Implications of Valuing Inventory under FIFO and LIFO Laura Lance Financial Accounting, ACC211 Instructor Suzanne Lozano 8 December 2011 FIFO and LIFO 1 Accounting Implications of Valuing Inventory under FIFO and LIFO LIFO and FIFO Inventory Accounting Methods The two most common methods of inventory accounting are Last-in-first-out (LIFO), and first-in –first out (FIFO), choosing the correct method of inventory
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3217 DECEMBER 9, 2008 WILLIAM E. BRUNS SHARON M. BRUNS SUSAN HARMELING Merrimack Tractors and Mowers, Inc.: LIFO or FIFO? Ricardo “Rick” Martino, president and chief operating officer of Merrimack Tractors and Mowers, Inc., of Nashua, New Hampshire, felt that his job had grown much more complicated during 2007 and 2008. Merrimack was a major regional manufacturer and seller of large commercial grass mowers based on a design developed by his grandfather in the years after World War II. The
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MEHJABEEN SUBMITTED ON: 30/ 04/ 2012 FIFO [ FIRST IN FIRST OUT ] | ADVANTAGES | DISADVANTAGES | * If the business trades perishable goods with the use of FIFO it can avoid obsolescence of stock. * Closing stock valuation is done upon the most recent prices paid for stock which takes into account the rate of inflation. * The method is more realistic as the inventory is issued in the order in which they have been received. * FIFO is acceptable method of inventory valuation
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FIFO, which is stand for “first-in-first-out”, is an inventory costing method which assumes that the first stock bought are the first ones to be sold, and the stock bought later are sold out later. Recently-placed goods that are unsold remain in the inventory at the end of the year. With this inventory valuation approach, the company accounts for the value of inventory received first when sales are made. One of the more common reasons a company chooses FIFO is because it is a more natural straight-line
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LIFO or FIFO Submission Date Sep-9-2015 Class: Accounting Submitted by Objective: Three companies changed their inventory accounting policy. Find the reason behind the change and analyze the impact of the change on the Balance Sheet and Profit & Loss. What accounting lessons we can learn from these two cases? Case 1 Questions 1. Use a table to show general effects of FIFO vs. LIFO Answer:
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for recording Inventory? Show proper examples. 4. What are the Cost Flow Formulas/Assumptions allowed in IAS-2 for maintaining Inventory? Show examples. Which one should be used in what situation? 5. Explain LIFO? Why LIFO is not permitted in IAS-2. Do you think repealing LIFO was wise decision of IASB? Discuss with its advantages & disadvantages. 6. What is NRV of an asset? When should company write down its inventories to NRV? Explain write-down processes with illustrations.
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LIFO or FIFO Submission Date Sep-9-2015 Class: Accounting Submitted by Objective: Three companies changed their inventory accounting policy. Find the reason behind the change and analyze the impact of the change on the Balance Sheet and Profit & Loss. What accounting lessons we can learn from these two cases? Case 1 Questions 1. Use a table to show general effects of FIFO vs. LIFO Answer:
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Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory ANSWERS TO QUESTIONS 1. Inventory often is one of the largest amounts listed under assets on the balance sheet which means that it represents a significant amount of the resources available to the business. The inventory may be excessive in amount, which is a needless waste of resources; alternatively it may be too low, which may result in lost sales. Therefore, for internal users inventory control is very important.
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this would ensure that they are within the guidelines of their covenants. 1. If you were Kathy Hutton, what would you do? Due to the fragile nature of Summit Distributors business, we would agree with Dave Flander’s suggestion of going from LIFO to FIFO. There are a few negatives and positives with this decision. First, violating any of the loan covenants would alert the bank, and any future dealing with them would incur a 50 basis point increase on the lending rate (.50%). Also because of the
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The controller suggested Rick to change the accounting method from LIFO to FIFO which would report to higher income figure in 2008 which subsequently would increase the taxes payable. Inference: After comparing income statements of year 2008 based on LIFO and FIFO methods we can observe a drastic impact it had on NET INCOME. NETINCOME is positive when FIFO method is used and negative when LIFO is used. • As per Colburn’s report,
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