ch09_inventory II - Inventories: Inventories: Additional...

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Chapter 9-1 Inventories: Inventories: Additional Valuation Issues Additional Valuation Issues Chapter Chapter 9 9 ISV Intermediate Accounting ISV Intermediate Accounting 12th Edition Update 12th Edition Update Kieso, Weygandt, and Warfield Prepared by Coby Harmon, University of California, Santa Barbara
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Chapter 9-2 1. 1. Describe and apply the lower-of-cost-or-market (LCM) rule. Describe and apply the lower-of-cost-or-market (LCM) rule. 2. 2. Explain when companies value inventories at net realizable Explain when companies value inventories at net realizable value (NRV). 3. 3. Explain when companies use the relative sales value method Explain when companies use the relative sales value method to value inventories. 4. 4. Discuss accounting issues related to purchase commitments. Discuss accounting issues related to purchase commitments. 5. 5. Determine ending inventory by applying the gross profit Determine ending inventory by applying the gross profit method. 6. 6. Determine ending inventory by applying the retail inventory Determine ending inventory by applying the retail inventory method. method. 7. 7. Explain how to report and analyze inventory. Learning Objectives Learning Objectives
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Chapter 9-3 Inventories: Additional Valuation Issues Inventories: Additional Valuation Issues Net realizable Net realizable value Relative sales value value Purchase commitments Lower-of- Cost-or- Cost-or- Market Market Valuation Valuation Bases Bases Gross Profit Gross Profit Method Method Retail Inventory Inventory Method Method Presentation Presentation and Analysis and Analysis Ceiling and Ceiling and floor How LCM works works Application of LCM Market” Market” Evaluation of rule Gross profit Gross profit percentage percentage Evaluation of Evaluation of method method Concepts Concepts Conventional Conventional method method Special items Special items Evaluation of Evaluation of method method Presentation Presentation Analysis Analysis
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Chapter 9-4 Market = Replacement Cost (RC) Lower of Cost or Replacement Cost Loss should be recorded when loss occurs, not in the period of sale. A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost. Lower-of-Cost-or-Market Lower-of-Cost-or-Market LO 1 Describe and apply the lower-of-cost-or-market rule. LO 1 Describe and apply the lower-of-cost-or-market rule. LCM
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Chapter 9-5 Decline in the RC usually reflects or predicts a decline in selling price. RC allows a consistent rate of gross profit. If reduction in RC fails to indicate reduction in utility, then two additional valuation limitations are used: Ceiling - net realizable value and Floor - net realizable value less a normal profit margin.
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This note was uploaded on 05/05/2011 for the course ACCOUNTING Accounting taught by Professor Accounting during the Spring '11 term at Cheyney.

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ch09_inventory II - Inventories: Inventories: Additional...

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