Time Value of Money Explained With Relevant Examples
Time value of money is a concept that refers to the greater benefit of receiving a given amount of money at present rather than in the future due to its earning potential. For example, money could be invested in a…
Current and Non-current Assets – Liabilities
The classified balance sheet distinguishes between current and non-current assets and between current and non-current liabilities. It classifies them separately. Current Assets vs. Non-current Assets Current assets are assets that are primarily held for trading or which are expected to…
Measurement Bases – Assets and Liabilities
Financial assets are measured and reported either at fair value or amortized cost. IFRS defines fair value as the amount at which an asset could be exchanged or a liability settled in an arm’s length transaction between knowledgeable and willing…
Components of Shareholders’ Equity
Shareholders’ equity represents the owners’ residual claim on a business entity’s assets after deducting its liabilities. This includes all funds that were directly invested in an entity by its owners, earnings that have been reinvested over time, and unrealized gains…
Costs Included in Inventories and Costs Recognised as Expenses
The amounts reported as ‘inventories’ and ‘cost of goods sold’ are two significant items that can appear on a company’s financial statements, especially for manufacturing and merchandising companies. Some costs are included in the asset ‘inventories,’ while others are recognized…
Describe Different Inventory Valuation Methods
The allocation of total inventory costs between ‘cost of sales on the income statement and ‘inventory’ on the balance sheet can vary depending on a company’s choice of inventory valuation method (also known as cost formula or cost flow assumption…
Using Different Inventory Valuation Methods
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, Gross…
How Inflation and Deflation of Inventory Costs Affect Financial Statements
Differences in the valuation method selected can, therefore, affect comparability between companies, when doing financial ratio analysis. The Effect of Inflation and Deflation of Inventory Costs on Financial Statements Whenever inventory unit costs decline and inventory quantities either remain constant…
Explain LIFO Reserve and LIFO Liquidation
US GAAP requires companies that 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 determine…
