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Q1IFRS

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Intermediate Accounting (Kieso)
Found in: Page 499

Short Answer

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for inventories

The similarities mentioned in step 1 and differences are mentioned in step 2.

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Step by Step Solution

Step1: Similarities between IFRS and GAAP

  • Under both approaches, inventories purchased are considered at purchase costs, and subsequent inventories purchased are evaluated at NRV.
  • Treatment of ownership of goods in transit, special sales agreements, and consignment goods are the same.

Step2: Differences between IFRS and GAAP

  • IFRS is principle-based, and GAAP is detailed guidelines for the accounting and reporting of inventories.
  • LIFO inventory valuation can be used in GAAP. However, it cannot be used in IFRS.
  • There is no exception to the LCNRV rule under IFRS.
  • Under GAAP, inventories reported at LCNRV cannot be reversed to the original cost. However, in the case of IFRS, it can be reversed.
  • Under IFRS, both biological assets are recorded at the net realizable value at the time of harvesting, whereas the same is not followed in the case of GAAP.

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On April 15, 2018, fire damaged the office and warehouse of Stanislaw Corporation. The only accounting record saved was the general ledger, from which the balance sheet data below was prepared. STANISLAW CORPORATION MARCH 31, 2018 Dr. Cr. Cash $ 20,000 Accounts receivable 40,000 Inventory, December 31, 2017 75,000 Land 35,000 Buildings 110,000 Accumulated depreciation $ 41,300 Equipment 3,600 Accounts payable 23,700 Other accrued expenses 10,200 Common stock 100,000 Retained earnings 52,000 Sales revenue 135,000 Purchases 52,000 Miscellaneous expense 26,600 . $362,200 $362,200The following data and information have been gathered. 1. The fiscal year of the corporation ends on December 31. 2. An examination of the April bank statement and canceled checks revealed that checks written during the period April 1–15 totaled $13,000: $5,700 paid to accounts payable as of March 31, $3,400 for April merchandise shipments, and $3,900 paid for other expenses. Deposits during the same period amounted to $12,950, which consisted of receipts on account from customers with the exception of a $950 refund from a vendor for merchandise returned in April. 3. Correspondence with suppliers revealed unrecorded obligations at April 15 of $15,600 for April merchandise shipments, including $2,300 for shipments in transit (f.o.b. shipping point) on that date. 4. Customers acknowledged indebtedness of $46,000 at April 15, 2018. It was also estimated that customers owed another $8,000 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $600 will probably be uncollectible. 5. The companies insuring the inventory agreed that the corporation’s fire-loss claim should be based on the assumption that the overall gross profit rate for the past 2 years was in effect during the current year. The corporation’s audited financial statements disclosed this information: Year Ended December 31 2017 2016 Net sales $530,000 $390,000 Net purchases 280,000 235,000 Beginning inventory 50,000 66,000 Ending inventory 75,000 50,000 6. Inventory with a cost of $7,000 was salvaged and sold for $3,500. The balance of the inventory was a total loss. Instructions Prepare a schedule computing the amount of inventory fire loss. The supporting schedule of the computation of the gross profit should be in good form.

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