Analyze and Compare the Financial Statements of Companies

Introduction A company’s choice of inventory valuation method can have a significant impact on the presentation of its financial statements. Financial items such as cost of sales, gross profit, net income, inventories, current assets, and total assets as well as…

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Calculate and Compare Ratios of Companies

  Introduction Financial ratios are very useful tools for comparing the financial performance of a company across time as well as against the performance of its peer companies or industry. In relation to inventory management, there are specific ratios which…

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Examining a Company’s Inventory Disclosures and Other Sources of Information

Introduction Financial statements analyses which fail to consider the impact of differences in methodologies adopted, disclosures made, and presentation formats are likely to result in faulty conclusions. An analyst has to have a critical mind and give consideration to the…

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Presentation and Disclosures Relating to Inventories

Introduction Disclosures are very useful to users of financial statements, especially when analyzing a company’s performance. Not surprisingly, the disclosure and presentation requirements are very similar under IFRS and US GAAP. Presentation and Disclosures Relating to Inventories Under IFRS, the…

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Implications of Valuing Inventory at Net Realizable Value

Introduction Under IFRS, whenever the value of inventory declines below the carrying amount on the balance sheet, the inventory carrying amount must be written down to its net realizable value and the loss recognized as an expense on the income…

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Measurement of Inventory at the Lower of Cost and Net Realisable Value

Introduction Under IFRS, inventories may be measured and carried on the balance sheet at the lower of cost and net realizable value. US GAAP, on the other hand, specifies the lower of cost or market to value inventories. Market value,…

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Convert a Company’s Reported Financial Statements from LIFO to FIFO

Introduction It is oftentimes necessary to compare the financial statements of companies which use LIFO against companies which use FIFO. Use of the LIFO reserve makes this possible.  For example, The LIFO reserve disclosure enables adjustments to be made to…

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Explain LIFO Reserve and LIFO Liquidation

Introduction US GAAP requires companies which use the LIFO method to disclose the amount of the LIFO reserve in the notes to the financial statements or on the balance sheet. It is important to review disclosures on LIFO reserves to…

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How Inflation and Deflation of Inventory Costs Affect the Financial Statements

Introduction Rising inventory costs (inflation) or declining inventory costs (deflation) can have a significant impact on a company’s financial statements, depending on the inventory valuation method that is used. Differences in the valuation method selected can, therefore, affect comparability between…

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Using Different Inventory Valuation Methods

Introduction Whenever prices change, the allocation of total inventory costs between cost of sales on the income statement and inventory on the balance sheet will vary depending on a company’s choice of inventory valuation method. Calculation of Cost of Sales,…

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