4. In considering the rules based approach of GAAP and the principles based approach of IFRS we looked at GAAP first. GAAP provides application clarity, low risk, and for companies in the same industry there is easy comparability. These Rules, however, must be accounted for using these rules even if the information is misleading, uneasy to compare across industries and the risk increases when rules are not followed. IFRS allows us to consider best out of multiple ways to account for transactions
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between FIFO, LIFO and CWAC 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
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Intermediate Accounting 3 October 20th, 2015 FASB Comment Letter On May 13th, 2015 FASB issued Accounting Standards Update, Simplifying the Measurement of Inventory. The Board came to the decision of abandoning inventory measured using the LIFO method, which is using last-in, first-out. They also decided on excluding the retail inventory methods. The Board also requires inventory to be measured at net realizable value and at the lower of cost. They believe that the result will cause a
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Ending Inventory = 1375 – 1100 = 275 units FIFO Ending Inventory = (110 x 28) + (165 x 24) = 3080 + 3960 = $7040 Cost of goods sold= 31295 – 7040 = $24255 LIFO Ending Inventory = (165 x 18) + (110 x 22)
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EXERCISE 8-5: (a) Inventory December 31, 2014 (unadjusted) $234,890 Transaction 2 13,420 Transaction 3 12,800 Transaction 4
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assumption of (1) average cost, (2) FIFO, (3) LIF0. Average cost: units sold without regard to the order in which they are purchased and computes COGS and ending inventories as simple weighted average. FIFO: the first units purchased are the first units sold. These units are the units on hand at the beginning of the period. LIFO: the last units purchased are the first to be sold. b. Discuss management’s usual reason for using LIFO as inflationary economy. The use of LIFO can reduce or delay tax payments
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3. Explain the financial statement and tax effects of each of the inventory cost flow assumptions. 4. Explain the lower of cost or market basis of accounting for inventories. 5. Compute and interpret the inventory turnover ratio. 6. Describe the LIFO reserve and explain its importance for comparing results of different companies. Summary of Questions by Study Objectives and Bloom’s Taxonomy Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT Questions
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ACCOUNTING FINAL EXAM PREP Assets : Manufacturing Inventory (p. 370) 1) Draw T-accounts for Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, A/P 2) Assign accounts to the questions 3) Enter beginning and ending balances on debit side: RM, WIP, F/G, and credit side: A/P 4) For COGS: use formula: Beginning Inventory + Purchases – Ending Inventories = COGS (alternatively) COGS – Beginning Inventory + Ending Inventories = Purchases
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1, 2, 3 Concepts for Analysis 1, 2, 3, 5, 11 2. 3. 4. 5. 2 9, 13, 14, 17 7, 8 2, 3, 4, 5, 10, 11, 12 13, 14, 15, 16, 17, 18, 19, 20, 21, 22 18 4, 5, 6 3 2 1, 4, 5, 6, 7 5, 6, 7, 8 4 6. 7. Inventory accounting changes. Dollar-value LIFO methods. 14, 15, 17, 18, 19 8, 9 7 1, 8, 9, 10, 11 6, 7, 10 8, 9 23, 24, 25, 26 8-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives 1. 2. 3. 4. 5. Identify major classifications of inventory. Distinguish
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LIFO to be accepted as costing method? I. Introduction In the United States, the SEC is expected to eventually mandate the adoption of International Financial Reporting Standards (IFRS). U.S. standards setters have been working toward this eventuality through a process of convergence. The SEC issued a statement in early 2010 that updated its timeline and indicated that companies could be required to adopt IFRS as early as 2015 (see SEC, "Commission Statement in Support of Convergence and Global
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