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. | PREVIEW OF CHAPTER 9 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand and apply the lower-of-cost-or-net realizable value rule. Understand and apply the lower-of-cost-or-market rule. Understand other inventory valuation issues. LEARNING OBJECTIVES 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 LO 1 Net realizable value (NRV) is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost. LOWER-OF-COST-OR-NET REALIZABLE VALUE LO 1 Definition of Net Realizable Value Illustration: Assume that Mander Corp. has unfinished inventory with a cost of $950, a sales value of $1,000, estimated cost of completion of $50, and estimated selling costs of $200. Mander’s net realizable value is computed as follows. Definition of Net Realizable Value LO 1 ILLUSTRATION 9-1 Computation of Net Realizable Value Mander reports inventory on its balance sheet at $750. In its income statement, Mander reports a Loss Due to Decline of Inventory to NRV of $200 ($950 − $750). LO 1 Definition of Net Realizable Value ILLUSTRATION 9-1 ILLUSTRATION 9-2 LCNRV Disclosures Regner Foods computes its inventory at LCNRV, as shown in Illustration 9-3 (amounts in thousands). LO 1 Illustration of LCNRV ILLUSTRATION 9-3 Determining Final Inventory Value LO 1 Methods of Applying LCNRV ILLUSTRATION 9-4 Alternative Applications of LCNRV Companies usually price inventory on an item-by-item basis. LO 1 Ending inventory (cost) $ 82,000 Ending inventory (at NRV) 70,000 Adjustment to LCNRV $ 12,000 Inventory 12,000 Loss Due to Decline in Inventory . | PREVIEW OF CHAPTER 9 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand and apply the lower-of-cost-or-net realizable value rule. Understand and apply the lower-of-cost-or-market rule. Understand other inventory valuation issues. LEARNING OBJECTIVES 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 LO 1 Net realizable value (NRV) is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost. LOWER-OF-COST-OR-NET REALIZABLE VALUE LO 1 Definition of Net Realizable Value Illustration: Assume that Mander Corp. has .
