In this chapter we complete our discussion of inventory measurement by explaining the lower-of-cost-or-market rule used to value inventories. In addition, we investigate inventory estimation techniques, methods of simplifying LIFO, changes in inventory method, and inventory errors. | INVENTORIES: ADDITIONAL ISSUES Chapter 9 Chapter 9: Inventories: Additional Issues. In this chapter we complete our discussion of inventory measurement by explaining the lower-of-cost-or-market rule used to value inventories. In addition, we investigate inventory estimation techniques, changes in inventory method, and inventory errors. Reporting -- Lower of Cost or Market Inventories are valued at the lower-of-cost-or market. LCM is a departure from historical cost. The method causes losses to be recognized in the period the value of inventory declines below its cost rather than in the period that the goods ultimately are sold. Inventories are to be valued on the statement of financial position at lower-of-cost-or-market. Initially, inventory items are recorded at their historical costs, but a departure from cost is warranted when the utility of an asset (the probable future economic benefits) is no longer as great as its cost. Deterioration, obsolescence, changes in price levels, or any situation that might comprise the inventory’s salability causes us to use a measure of lower-of-cost-or-market. Using LCM causes losses to be recognized in the period the value of inventory declines below its cost rather than in the period that the goods ultimately are sold. Determining Market Value + Estimated selling price − Cost of Completion − Cost to sell = Net Realizable Value / Market Value IAS No. 2 defines “market value” as the net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business less estimated cost of completion and disposal (cost to sell). IAS No. 2 defines market value as the net realizable value (NRV). The NRV is the estimated selling price in the ordinary course of business, less estimated cost of completion and estimated cost necessary to make the sale. The estimated selling price should incorporate considerations of fluctuations of price or cost directly relating to events occurring after the end of the accounting period | INVENTORIES: ADDITIONAL ISSUES Chapter 9 Chapter 9: Inventories: Additional Issues. In this chapter we complete our discussion of inventory measurement by explaining the lower-of-cost-or-market rule used to value inventories. In addition, we investigate inventory estimation techniques, changes in inventory method, and inventory errors. Reporting -- Lower of Cost or Market Inventories are valued at the lower-of-cost-or market. LCM is a departure from historical cost. The method causes losses to be recognized in the period the value of inventory declines below its cost rather than in the period that the goods ultimately are sold. Inventories are to be valued on the statement of financial position at lower-of-cost-or-market. Initially, inventory items are recorded at their historical costs, but a departure from cost is warranted when the utility of an asset (the probable future economic benefits) is no longer as great as its cost. Deterioration, obsolescence, changes in price levels, or
