Acc372_Kieso13e_Ch09 - Inventories: Additional Valuation...

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Unformatted text preview: Inventories: Additional Valuation Issues Kieso 13e Chapter 9 1 (LO2) Net (LO2) Net realizable realizable value value (LO3) (LO3) Relative sales Relative sales value value (LO1) Lower- (LO1) Lower- of-Cost-or- of-Cost-or- Market Market Valuation Valuation Bases Bases (LO5) Gross (LO5) Gross Profit Method Profit Method (LO7) (LO7) Presentation Presentation and Analysis and Analysis Ceiling and Ceiling and floor floor How LCM How LCM works works Application of Application of LCM LCM “ “ Market” Market” Evaluation of Evaluation of rule rule Gross profit Gross profit percentage percentage Evaluation of Evaluation of method method Presentation Presentation Analysis Analysis Inventories: Additional Valuation Issues Inventories: Additional Valuation Issues 2 Lower of Cost or Market (LCM) • Ending inventories – Reported at LCM – No longer historical cost because the future utility (revenue-producing ability) of the asset drops below its original cost. • Cost – FIFO, LIFO, etc. • Market – Replacement cost 3 LCM: Market Not Not < Ceiling = Net Realizable Value (NRV) = estimated sales price – estimated selling expenses Market = Replacement Cost Floor = NRV - Normal Profit Margin Not Not > The middle value = designated market value 4 LCM: Cost vs. Designated Market Value Cost < Designated market value Ending inventories reported at cost Cost Cost > Designated market value Ending inventories reported at designated market value Designated market value vs....
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This note was uploaded on 09/11/2011 for the course ACCOUNTING 323 taught by Professor None during the Spring '10 term at Prince George's Community College, Largo.

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Acc372_Kieso13e_Ch09 - Inventories: Additional Valuation...

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