After completing this chapter you should be able to: Identify major classifications of inventory, distinguish between perpetual and periodic inventory systems, identify the effects of inventory errors on the financial statements, understand the items to include as inventory cost, describe and compare the cost flow assumptions used to account for other contents. | C H A P T E R 8 VALUATION OF INVENTORIES: A COST-BASIS APPROACH Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Identify major classifications of inventory. Distinguish between perpetual and periodic inventory systems. Identify the effects of inventory errors on the financial statements. Understand the items to include as inventory cost. Describe and compare the cost flow assumptions used to account for inventories. Explain the significance and use of a LIFO reserve. Understand the effect of LIFO liquidations. Explain the dollar-value LIFO method. Identify the major advantages and disadvantages of LIFO. Understand why companies select given inventory methods. Learning Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information) Inventory Issues Physical Goods Included in Inventory Costs Included in Inventory Cost Flow Assumptions LIFO: Special Issues Classification Cost flow Control Basic inventory valuation Basis for Selection Goods in transit Consigned goods Special sales agreements Inventory errors Product costs Period costs Purchase discounts Specific identification Average cost FIFO LIFO LIFO reserve LIFO liquidation Dollar-value LIFO Comparison of LIFO approaches Advantages of LIFO Disadvantages of LIFO Summary of inventory valuation methods Valuation of Inventories: Cost-Basis Approach Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the . | C H A P T E R 8 VALUATION OF INVENTORIES: A COST-BASIS APPROACH Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Identify major classifications of inventory. Distinguish between perpetual and periodic inventory systems. Identify the effects of inventory errors on the financial statements. Understand the items to include as inventory cost. Describe and compare the cost flow assumptions used to account for inventories. Explain the significance and use of a LIFO reserve. Understand the effect of LIFO liquidations. Explain the dollar-value LIFO method. Identify the major advantages and disadvantages of LIFO. Understand why companies select given inventory methods. Learning Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods .
