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…
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…
Measurement of Inventory at the Lower of Cost and Net Realisable Value
Under IFRS, inventories may be measured and carried on the balance sheet at a lower cost and net realizable value. US GAAP, on the other hand, specifies the lower cost or market to value inventories. Market value, for this purpose,…
Implications of Valuing Inventory at Net Realizable Value
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. Most importantly, the loss must be recognized as an expense on…
Presentation and Disclosures Relating to Inventories
Disclosures are very useful to users of financial statements, especially when analyzing a company’s performance. Coincidentally, the disclosure and presentation requirements are very similar under IFRS and US GAAP. Presentation and Disclosures Relating to Inventories Under IFRS, the following financial…
Examining a Company’s Inventory Disclosures and Other Sources of Information
Financial statement analyses that 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 information…
