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Intermediate Acc Ch. 9
Terms in this set (21)
when to abandon historical cost
when its future utility is lower than its book value
either replacement cost (LIFO) or NRV (all other inventory methods)
= sales price - cost to bring to sale
the cost to replace an inventory item in its identical form
Market for LIFO in US GAAP
replacement cost is limited by a "floor" and "ceiling"
market "floor" equation
= NRV - Profit Margin
On what inventory can LCM be applied?
- item to item
- inventory classes
- total inventory
Lower of Cost or Market (LCM)
A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.
Direct Method LCM
- EI is stated at LCM and cost is disposed in COGS
Allowance Method at cost
- EI is recorded at cost and an additional entry is made
Loss mkt decline of inv
allowance to reduce inv to mkt
***decline in other gains/losses
what accounting rules state LIFO at LCM?
what accounting rules state all inventory except LIFO at NRV?
GAAP and IFRS
what accounting rules does not let you reverse write-downs of inventory?
what accounting rules let you reverse a write-down of inventory?
how to estimate probable loss on firm purchase commitment
price of purchase commitment - market price = loss on purchase
**price of commitment pertains to commitment left when market drops, not on items already on hand
JE for market price drops on a firm purchase commitment
estimated loss of purch commit.
estimate liability on purch commit.
**loss recorded in period of market value decline
relative sales value method
A method in which joint costs are allocated to the joint products in proportion to their total sales values at the split-off point.
Gross Profit Method
A method of estimating inventory cost that is based on the relationship of gross profit to sales.
Gross Profit Method calculation
BI + purch - (Sales x 1-%GP) = EI
Retail Inventory Method
Method for estimating ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail.
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