(BQ) Part 2 book “Accounting in the finance world” has contents: In a set of financial statements, what information is conveyed about property and equipment, in a set of financial statements, what information is conveyed about equity investments, and other contents. | Chapter 9 Why Does a Company Need a Cost Flow Assumption in Reporting Inventory? Video Clip (click to see video) Joe introduces Chapter 9 "Why Does a Company Need a Cost Flow Assumption in Reporting Inventory?" and speaks about the course in general. 302 Chapter 9 Why Does a Company Need a Cost Flow Assumption in Reporting Inventory? The Necessity of Adopting a Cost Flow Assumption LEARNING OBJECTIVES At the end of this section, students should be able to meet the following objectives: 1. Understand the reason that accounting rules are often standardized so that all companies report many events in the same manner. 2. Know that the selection of a particular cost flow assumption is necessary when inventory is sold. 3. Apply the following cost flow assumptions to determine reported balances for ending inventory and cost of goods sold: specific identification, FIFO, LIFO, and averaging. Question: In the coverage of financial accounting to this point, general standardization has been evident. Most transactions are recorded in an identical fashion by all companies. This defined structure helps ensure understanding. It also enhances the ability of decision makers to compare results from one year to the next or from one company to another. For example, inventory—except in unusual circumstances—is always reported at historical cost unless its value is lower. Experienced decision makers should be well aware of that criterion when they are reviewing the inventory figures reported by a company. However, an examination of the notes to financial statements for some well-known businesses shows an interesting inconsistency in the reporting of inventory (emphasis added). Mitsui & Co. (.) Inc.—as of March 31, 2009: “Inventories, consisting mainly of commodities and materials for resale, are stated at the lower of cost, principally on the specific-identification basis, or market.” Johnson & Johnson and Subsidiaries—as of December 28, 2008: “Inventories are stated at .
