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Session 10 Inventories-III. Dollar Value LIFO-Attributes. Simplifies LIFO Minimizes LIFO liquidation risk Focuses on overall value. DVL-Methodology. Cost index Base year valuation Identification of layers Conversion of layers to current cost See p. 362. Gross Profit Method-Estimation.

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session 10 inventories iii
Session 10

Inventories-III

Intermediate Accounting I - Fall 2011

dollar value lifo attributes
Dollar Value LIFO-Attributes
  • Simplifies LIFO
  • Minimizes LIFO liquidation risk
  • Focuses on overall value

Intermediate Accounting I - Fall 2011

dvl methodology
DVL-Methodology
  • Cost index
  • Base year valuation
  • Identification of layers
  • Conversion of layers to current cost
  • See p. 362

Intermediate Accounting I - Fall 2011

gross profit method estimation
Gross Profit Method-Estimation
  • Destroyed inventory
  • Interim reporting
  • Test of reasonableness
  • Planning
  • Not allowed for GAAP

Intermediate Accounting I - Fall 2011

gross profit method application
Gross Profit Method Application
  • Estimate COGS using GP% or MU%
  • Apply standard inventory algorithm

Intermediate Accounting I - Fall 2011

retail inventory method
Retail Inventory Method
  • More accurate than GP
  • Need retail information
  • Convert back to cost @ current cost/retail %
  • See p. 435ff
  • Allowed for GAAP

Intermediate Accounting I - Fall 2011

retail terminology
Retail Terminology
  • Initial markup
  • Additional markup
  • Markup cancellation
  • Markdown
  • Markdown cancellation

Intermediate Accounting I - Fall 2011

retail method application
Retail Method Application
  • Average cost-p. 438
    • Net markdowns before % calc.
  • LCM (Conventional Retail Method)-p. 438
    • Net markdowns after % calc.
  • LIFO retail-p. 439
    • Same as avg. cost but layer % calc.

Intermediate Accounting I - Fall 2011

shortages freight empl discounts
Shortages, Freight & Empl. Discounts
  • Include freight only on cost side
  • Purchase returns deduct in both.
  • Purchase discounts, if gross method, deduct on cost side
  • Abnormal shortages (both) before % calc.
  • Normal shortages (retail) after % calc.
  • Sales discounts are not considered.
  • Employee discounts are added to net sales.

Intermediate Accounting I - Fall 2011

dvl retail
DVL Retail
  • Follow LIFO retail until ending inventory at retail
  • Index end. inventory and value new layers
  • See p. 465

Intermediate Accounting I - Fall 2011

inventory changes errors
Inventory Changes & Errors
  • Changes-other than change to LIFO
    • Retrospective treatment
  • Change to LIFO
    • No special treatment; F/N disclosure
  • Material Errors
    • Restatement (not P&L) and F/N disclosure

Intermediate Accounting I - Fall 2011

typical f n disclosure
Typical F/N Disclosure
  • Description of item
  • Justification
  • Yearly impact

Intermediate Accounting I - Fall 2011

competency check
Competency Check
  • Theory points-4
    • Acquisition
    • Carrying method
    • Cost flow assumption
    • Valuation-LCM

Intermediate Accounting I - Fall 2011

competency check cont
Competency Check Cont.
  • Cost flow assumptions-10
    • Average cost
    • Specific identification
    • FIFO
    • LIFO
    • DVL
    • Gross profit
    • Retail
    • Conventional retail
    • LIFO retail
    • DVL retail

Intermediate Accounting I - Fall 2011

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