22 Inventory_Measurement II - Inventory Measurement II...

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Unformatted text preview: Inventory Measurement II Inventory Measurement II Accountancy 301 Spring 2011 Flora Zhou 22 Today Today ’s agenda ’s agenda • Valuation of inventory – LCM • Case discussion • In-class exercises • Midterm 2 remarks Valuation of inventory Valuation of inventory • Lower of cost or market (LCM)(GAAP) – Inventory is originally valued at cost (to purchase or produce) – LCM is applied when a significant decline in value occurs. Ending inventory is written down. Dr. Cost of Goods Sold or Loss on reduction to LCM (+E) .. Cr. Finished goods inventory (-A) .. • What if the inventory value later recovers prior to its sale? – Under U.S. GAAP: we do not write it back up. – Under IAS: the amount of the write-down can be reserved so that the new carrying amount is the lower of the cost and the revised net realizable value. Determining market value Determining market value Market Should Not Exceed Net Realizable Value ( Ceiling ) Market Should Not Be Less Than Net Realizable Value less Normal Profit ( Floor ) Accounting Research Accounting Research Bulletin No. 43 defines Bulletin No. 43 defines “market value” in “market value” in terms of current terms of current replacement cost....
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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22 Inventory_Measurement II - Inventory Measurement II...

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