the 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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As three of America’s leading retailers‚ Home Depot‚ Nordstrom‚ and Cold Water Creek‚ are responsible for over $80 billion in annual sales. Retail industry analysts look for commonalities in inventory management reporting in order to track company’s ability to move inventory and maximize pricing strategies and avoid having to discount obsolescent inventory thus affecting profit. Through analysis of a company’s inventory management ratio‚ outside investors and inside management can track the number
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extraordinary items are not segregated in the income statement‚ while‚ under US GAAP‚ they are shown below the net income. Inventory -- Under IFRS‚ LIFO (a historical method of recording the value of inventory‚ a firm records the last units purchased as the first units sold) cannot be used while under U.S. GAAP‚ companies have the choice between LIFO and FIFO (is a common method for recording the value of inventory). Earning-per-Share -- Under IFRS‚ the earning-per-share calculation does not average
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profits. In addition to higher bonuses‚ managers can manipulate earnings numbers to impress shareholders and protect their jobs. One of the methods used by management to achieve desired income is to manipulate the LIFO inventory method. This method allows management to dip into the LIFO “reserves” and to make carefully timed year-end purchases. Efforts to change accounting standards to those that are closer to reality have been rejected as being unauditable or too volatile. A second beneficiary
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comparison to Smelters current FIFO Inventory management system and issued a proposal to change their inventory valuation method from LIFO to FIFO. Factors to Consider Western Aluminum addressed multiple topics to validate their proposal idea. As mentioned above‚ the acquisition of Smelter and its projected out puts is one consideration made. The high-value LIFO layers and commodity price swings has resulted in large non-cash adjustments to Inventory. Switching to FIFO will allow for period end
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addressing computer software development costs. Inventory With US GAAP‚ LIFO method is used for costing inventory and in measuring‚ inventory is carried at the lower of cost or market value (current replacement cost but not greater than net realizable value). And in writing down inventory‚ any write-down of inventory to the lower of cost or market creates a new cost basis that subsequently cannot be reversed. With IFRS‚ (IAS 2)‚ LIFO method is prohibited and FIFO is used for costing inventory and the
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E7-2 (Determine Cash Balance) Presented below are a number of independent situations. Instructions For each individual situation‚ determine the amount that should be reported as cash. If the item(s) is not reported as cash‚ explain the rationale. 1. Checking account balance $925‚000; certificate of deposit $1‚400‚000; cash advance to subsidiary of $980‚000; utility deposit paid to gas company $180. 2. Checking account balance $600‚000; an overdraft in special checking account at same bank as normal
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made. True False 5. All changes reported using the retrospective approach require prior period adjustments. True False 6. All changes in estimate are accounted for retrospectively. True False 7. A change to the LIFO method of valuing inventory usually requires use of the retrospective method. True False 8. Both changes in reporting entities and material error corrections are reported prospectively. True False 9. A change in reporting
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Case 3-6 Accounting Standards A. Given the income statement effects of LIFO versus FIFO‚ how will the balance sheet inventory amounts differ between General Motors and Ford versus Honda and Daimler-Benz? In other words‚ will inventory be reported amounts representing recent costs or older historical costs? In your opinion‚ which balance sheet amounts would be more useful to financial statement users in making decisions to buy or sell shares of a company’s stock? Inventory is an asset that
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However‚ because of tax law requirements‚ if a company uses this assumption for tax purposes it must also use it for its financial statements. Whole Foods Market uses LIFO (Last-in‚ First-out) method to determine cost. It does not coincide with the actual movement of goods. LIFO is used during inflation to defer income tax payments. Under LIFO the goods in inventory at the beginning of the period are assumed to remain in the ending inventory
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