Regulating Inventory – An Examination of AASB 102 “Inventories” Inventories are in essence what organisations hold with an intention to sell‚ however directly or indirectly. For most businesses‚ this is how their profits are made‚ and it is reasonable to assume that these items account for much of an organisation’s activities. Such a big influence on indicators of financial performance and position warrants an equally large need for regulation to ensure that users of the financial statements are
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Retained Earnings: Overstated as net income is overstated. Ending Inventory: Over Stated Write the letter of the method that is most applicable to each statement. a. Specific identification b. Average cost c. First-in‚ first-out (FIFO) d. Last-in‚ first-out (LIFO) ____A___ 1. Is the most realistic ending inventory ____D___ 2. Results in cost of goods sold being closest to current product costs ____C___ 3. Results in highest income during periods of inflation ____C___ 4. Results in highest ending
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balance sheet instead. 7-74 The discounted cash flow model implies that‚ other things being equal‚ it is always desirable to take a tax deduction earlier rather than later. Moreover‚ if prices rise‚ LIFO will generate earlier tax deductions than FIFO. By switching from LIFO to FIFO‚ Chrysler deliberately boosted its tax bills by $53 million in exchange
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There are various methods in the accounting world used to keep track of inventory and cost of goods used. FIFO stands for first in first out method which is the opposite of LIFO‚ last in first out. Both methods have disadvantages and advantages when it comes to tax time or preparing a financial statement for the investors. As the name suggest‚ FIFO will account inventory that came in first will be sold first. This method is effective for companies selling products with expiration dates. Obviously
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Revenue $35‚000-Cost of Goods $15‚000=$20‚000 Gross Profit c. ending inventory. $21‚800 (sunset)+ $31‚200 (earth)=$53‚000 (ending inventory) 2. Inventory valuation methods: basic computations. 3. Perpetual inventory system: journal entries. a. FIFO • 1/2/20X3 Purchases on account: 500 units @ $6 = $3‚000 Dr Merchandise Inventory 2‚000 Cr Accounts Payable 2‚000 • 1/15/20X3 Sales on account: 300 units @ $8.50 = $2‚550 Dr Accounts Receivable 2‚550 Cr Sales 2‚550 Dr Cost of Goods Sold 1
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had used FIFO to value its inventories c. Calculate inventory turnover for the year using the reported numbers. a. Whole Foods Market values their inventories at the lower of cost or market. They use the last-in‚ first-out (“LIFO”) method to determine the cost. It was used for approximately 93.6% and 94.0% of inventories in fiscal years 2009 and 2008‚ respectively. b. Cost of sales for the year under FIFO would have been: * COGS (FIFO) = COGS (LIFO) – change in LIFO reserve
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Financial Statement Analysis K R Subramanyam John J Wild McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies‚ Inc. All rights reserved. 4-2 Analyzing Investing Activities 4 CHAPTER 4-3 Current Asset Introduction Classification Current (Short-term) Assets Resources or claims to resources that are expected to be sold‚ collected‚ or used within one year or the operating cycle‚ whichever is longer. Noncurrent (Longterm) Assets Resources or claims to resources
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switched from FIFO to LIFO in accounting for inventory. The preceding year it had switched from the weighted-average method to FIFO. I think it is conflict with accounting theory. First‚ accounting method should not be changed year to year. The company should apply for changing the accounting method by giving some reasonable reasons. After permitted‚ the company can change the method. But it should be indicated. Second‚ if the company uses LIFO for tax purposes‚ it must also use LIFO for financial
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Financial Accounting Under the FIFO cost flow assumption during a period of inflation‚ which of the following is false? WHICH OF THE FOLLOWING IS NOT TRUE. (Hint: One way to answer this is to look at examples of lifo and fifo). Choose one answer. a. Income tax expense will be higher than under LIFO. b. Gross margin will be higher than under LIFO. c. Ending inventory will be lower than under LIFO. d. Cost of goods sold will be lower than under LIFO. e. All of the above are
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perpetual system. With a perpetual system‚ a running count of goods on hand is maintained at all times. The perpetual inventory method is not a physical check of inventory but rather a recording of changes in inventory when sales transactions occur. The FIFO method‚ which is explained later‚ will produce the same financial statement results no matter whether it is applied on a periodic or perpetual basis. This occurs because the beginning inventory and early purchases are taken away and charged to the
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