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Lecture Issues in financial accounting – Lecture 13: Depreciation, impairments, and depletion

The contents of this chapter include all of the following: Determine ending inventory by applying the LIFO retail methods; identify the factors involved in the depreciation process; compare activity, straight-line, and decreasing-charge methods of depreciation; explain special depreciation methods;. | Depreciation, Impairments, and Depletion PART II: Corporate Accounting Concepts and Issues Lecture 13 Review of Lecture 11 (LIFO at Fluctuating Prices and Subsequent adjustments) LO 8 Determine ending inventory by applying the LIFO retail methods. Fluctuating Prices—Dollar-Value LIFO Retail If the price level does change, the company must eliminate the price change so as to measure the real increase in inventory, not the dollar increase. LIFO RETAIL METHODS LO 8 Determine ending inventory by applying the LIFO retail methods. Illustration: Assume that the beginning inventory had a retail market value of $10,000 and the ending inventory had a retail market value of $15,000. Assume further that the price level has risen from 100 to 125. It is inappropriate to suggest that a real increase in inventory of $5,000 has occurred. Instead, the company must deflate the ending inventory at retail. Illustration 9A-4 LIFO RETAIL METHODS Illustration: Assume that the current 2010 price index is 112 | Depreciation, Impairments, and Depletion PART II: Corporate Accounting Concepts and Issues Lecture 13 Review of Lecture 11 (LIFO at Fluctuating Prices and Subsequent adjustments) LO 8 Determine ending inventory by applying the LIFO retail methods. Fluctuating Prices—Dollar-Value LIFO Retail If the price level does change, the company must eliminate the price change so as to measure the real increase in inventory, not the dollar increase. LIFO RETAIL METHODS LO 8 Determine ending inventory by applying the LIFO retail methods. Illustration: Assume that the beginning inventory had a retail market value of $10,000 and the ending inventory had a retail market value of $15,000. Assume further that the price level has risen from 100 to 125. It is inappropriate to suggest that a real increase in inventory of $5,000 has occurred. Instead, the company must deflate the ending inventory at retail. Illustration 9A-4 LIFO RETAIL METHODS Illustration: Assume that the current 2010 price index is 112 (prior year 100) and that the inventory ($56,000) has remained unchanged. Illustration 9A-5 Dollar-Value LIFO Retail Method—Fluctuating Prices LIFO RETAIL METHODS LO 8 LO 8 Determine ending inventory by applying the LIFO retail methods. Illustration: From this information, we compute the inventory amount at cost: Illustration 9A-6 Hernandez must restate layers of a particular year to the prices in effect in the year when the layer was added. LIFO RETAIL METHODS LO 8 Illustration: Using the data from the previous example, assume that the retail value of the 2013 ending inventory at current prices is $64,800, the 2013 price index is 120 percent of base-year, and the cost-to-retail percentage is 75 percent. Compute the ending inventory at LIFO cost. Illustration 9A-8 Subsequent Adjustments under Dollar-Value LIFO Retail LIFO RETAIL METHODS Depreciation, Impairments, and Depletion PART II: Corporate Accounting Concepts and Issues Lecture 13 Explain the concept of depreciation. Identify the