IFRS & GAAP - Inventory Costing and Valuation
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The acquisition cost of inventory remaining at the end of a period is measured using LIFO, FIFO, or average cost.
a.) Rank cost of goods sold, gross profit, and ending inventory from highest to lowest under the three cost-flow assumptions when input prices are rising.
b.) How should differences between acquisition cost and the market value of inventory be reported on the balance sheet under IFRS and U.S. GAAP?
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Solution Summary
The acquisition cost of inventory remaining at the end of a period is measured using LIFO, FIFO, or average cost.
a.) Rank cost of goods sold, gross profit, and ending inventory from highest to lowest under the three cost-flow assumptions when input prices are rising.
b.) How should differences between acquisition cost and the market value of inventory be reported on the balance sheet under IFRS and U.S. GAAP?
Solution Preview
a. Inventory Costing
The fact that the prices are rising is the key factor here. If the prices are rising then the most recent items purchased will have higher costs.
Therefore:
LIFO:
When prices are rising the LIFO method has the highest cost of goods sold, the lowest Gross Profit and the Lowest ending Inventory figures.
FIFO:
FIFO is the exact opposite, FIFO will produce the lowest cost of goods ...
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