Question: What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why?
The LCNRV can be applied on the basis of individual items, major categories, and total items. Individual item basis is generally used, as it provides the conservative valuation of inventories in the balance sheet.A
Under the individual items basis (or item-by-item basis), lower-of-cost-or-net-realizable-value is applied to individual items in the inventories.
Under the major categories basis, lower-of-cost-or-net-realizable-value is applied on the basis of different categories of inventories held by the business. In this approach, high selling price is offset partially.
Under the total approach, lower-of-cost-or-net-realizable-value is applied on the basis of the total value of the inventory. In this approach, the high selling price is offset totally.
In the normal scenario, individual item basis is followed to apply the LCNRV method as it indicates the correct value of the inventory, for reporting in the balance sheet.
Retail Inventory Method—Conventional and LIFO) Leonard Company began operations late in 2016 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2016 and no markdowns during 2016, the ending inventory for 2016 was $14,000 under both the conventional retail method and the LIFO retail method. At the end of 2017, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2017. The following data are available for computations. Cost Retail Inventory, January 1, 2017 $14,000 $20,000 Sales revenue 80,000 Net markups 9,000 Net markdowns 1,600 Purchases 58,800 81,000 Freight-in 7,500 Estimated theft 2,000 Instructions Compute the cost of the 2017 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method
You assemble the following information for Seneca Department Store, which computes its inventory under the dollar-value LIFO method. Cost Retail Inventory on January 1, 2017 $216,000 $300,000 Purchases 364,800 480,000 Increase in price level for year 9% Instructions Compute the cost of the inventory on December 31, 2017, assuming that the inventory at retail is (a) $294,300 and (b) $365,150.
All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the: (a) definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. (b) average-cost method is prohibited under IFRS. (c) inventory basis determination for write-downs differs between GAAP and IFRS. (d) guidelines are more principles-based under IFRS than they are under GAAP.
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