9 9-26A - Chapter 9 p.1 C H A P T E R C H A P T E R 9 9...

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Unformatted text preview: Chapter 9 p.1 C H A P T E R C H A P T E R 9 9 INVENTORIES: INVENTORIES: ADDITIONAL VALUATION ISSUES ADDITIONAL VALUATION ISSUES Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 9 p.2 I nventories: Additional Valuation I ssues I nventories: Additional Valuation I ssues Lower-of- Lower-of- Cost-or- Cost-or- Market Market Valuation Valuation Bases Bases Gross Profit Gross Profit Method Method Retail Retail Inventory Inventory Method Method Presentation Presentation and Analysis and Analysis Chapter 9 p.3 Not Not < Cost Market Ceiling = NRV Replacement Cost Floor = NRV less Normal Profit Margin GAAP LCM What is the rationale for the What is the rationale for the Ceiling Ceiling and and Floor Floor limitations? limitations? Lower -of-Cost-or -Mar ket Lower -of-Cost-or -Mar ket Not Not > I llustration 9-3 I llustration 9-3 Chapter 9 p.4 Cost vs. Market Lower -of-Cost-or -Mar ket (LCM) Lower -of-Cost-or -Mar ket (LCM) What you paid eiling = Selling price cost to complete & sell eplacement Cost = current vendor prices Lower of Cost or Middle Market Chapter 9 p.5 Ceiling prevents overstatement of the value of obsolete, damaged, or shopworn inventories. Floor deters understatement of inventory and overstatement of the loss in the current period. Lower -of-Cost-or -Mar ket Lower -of-Cost-or -Mar ket Rationale for Limitations Chapter 9 p.6 E9-2 E9-2 I tem D Market Values: RC = 120 Ceiling = 120 30 = 90 Floor = 90 20 = 70 Middle Market Value = 90 Cost = 75 LCM = 75 Chapter 9 p.7 E9-2 E9-2 I tem E Market Values: RC = 72 Ceiling = 110 30 = 80 Floor = 80 20 = 60 Middle Market Value = 72 Cost = 80 LCM = 72 Chapter 9 p.8 E9-2 E9-2 I tem F Market Values: RC = 70 Ceiling = 95 35 = 60 Floor = 60 20 = 40 Middle Market Value = 60 Cost = 80 LCM = 60 Chapter 9 p.9 Lower -of-Cost-or -Mar ket Lower -of-Cost-or -Mar ket Recording LCM (data from I llus. 9-5 and 9-6) Ending inventory (cost) $ 415,000...
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This note was uploaded on 10/02/2010 for the course ACCT 5457 taught by Professor Polm during the Spring '10 term at Rensselaer Polytechnic Institute.

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9 9-26A - Chapter 9 p.1 C H A P T E R C H A P T E R 9 9...

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