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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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