Chapter 9 - Inventories: Additional valuation issues. In this chapter, the learning objectives are: Describe and apply the lower-of-cost-or-market rule, explain when companies value inventories at net realizable value, explain when companies use the relative sales value method to value inventories, discuss accounting issues related to purchase commitments. | Prepared by Coby Harmon University of California, Santa Barbara Intermediate Accounting Intermediate Accounting Prepared by Coby Harmon University of California, Santa Barbara Westmont College INTERMEDIATE ACCOUNTING F I F T E E N T H E D I T I O N Prepared by Coby Harmon University of California, Santa Barbara Westmont College kieso weygandt warfield team for success PREVIEW OF CHAPTER Intermediate Accounting 15th Edition Kieso Weygandt Warfield 9 Determine ending inventory by applying the gross profit method. Determine ending inventory by applying the retail inventory method. Explain how to report and analyze inventory. After studying this chapter, you should be able to: Inventories: Additional Valuation Issues 9 LEARNING OBJECTIVES Describe and apply the lower-of-cost-or-market rule. Explain when companies value inventories at net realizable value. Explain when companies use the relative sales value method to value inventories. Discuss accounting issues related to purchase commitments. Market = Replacement Cost. Value goods at cost or cost to replace, whichever is lower. Loss should be recorded when loss occurs, not in the period of sale. A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost. LO 1 Describe and apply the lower-of-cost-or-market rule. Lower-of-Cost-or-Market LO 1 Lower-of-Cost-or-Market Illustration 9-1 Lower-of-Cost-or-Market Disclosures Decline in the RC usually = decline in selling price. RC allows a consistent rate of gross profit. If reduction in RC fails to indicate reduction in utility, then two additional valuation limitations are used: Ceiling - net realizable value and Floor - net realizable value less a normal profit margin. Why use Replacement Cost (RC) for Market? LO 1 Describe and apply the lower-of-cost-or-market rule. Ceiling and Floor Lower-of-Cost-or-Market Net realizable value (NRV) is the is the estimated selling price in the ordinary . | Prepared by Coby Harmon University of California, Santa Barbara Intermediate Accounting Intermediate Accounting Prepared by Coby Harmon University of California, Santa Barbara Westmont College INTERMEDIATE ACCOUNTING F I F T E E N T H E D I T I O N Prepared by Coby Harmon University of California, Santa Barbara Westmont College kieso weygandt warfield team for success PREVIEW OF CHAPTER Intermediate Accounting 15th Edition Kieso Weygandt Warfield 9 Determine ending inventory by applying the gross profit method. Determine ending inventory by applying the retail inventory method. Explain how to report and analyze inventory. After studying this chapter, you should be able to: Inventories: Additional Valuation Issues 9 LEARNING OBJECTIVES Describe and apply the lower-of-cost-or-market rule. Explain when companies value inventories at net realizable value. Explain when companies use the relative sales value method to value inventories. Discuss accounting issues related to purchase .
