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Int. Acct. I
Ch. 8: Inventories Additional Valuation Issues
| Term | Definition |
|---|---|
| net realizable value (NRV) | refers to the net amount that a company expects to realize from the sale of inventory |
| lower-of-cost-or-net realizable value | LCNRV |
| COGS Method | debits Cost of Goods sold for the write-down of the inventory to NRV |
| loss method | debits a loss account for the write-down of the inventory to NRV |
| lower cost of market (LCM) | start with replacement cost (the amount the company would pay to replace the inventory) and then apply two additional limitations to value ending inventory: (1) net realizable value and (2) net realizable value less a normal profit margin. |
| replacement cost | the amount the company would pay to replace the inventory |
| celing | Net Realizable Value |
| floor | Net Realizable Value less a Normal Profit Margin |
| net realizable value less a normal profit margin | A normal profit margin is subtracted from NRV |
| designated market | the amount that a company compares to cost starts with the cost to replace the item with one of similar value (“replacement cost”); replacement cost is limited by ceiling and floor restrictions that are based on measurements of exit value. |
| lump-sum purchase | basket purchase |
| relative sales value | to allocate the total among the various units on the basis to accurately value each unit |
| purchase comittments | purchase commitments represent contracts for the purchase of inventory at a specified price in a future period that is noncancelable |
| gross profit method | used when an estimate of a firm's inventory is required |
| Gross Profit on Selling Price | = Percentage Markup on cost/100% + Percentage Markup on Cost |
| Percentage Markup on Cost | = Gross Profit on Selling Price/100% - Gross Profit on Selling Price |
| interim reports | provides a quick and reliable measure of inventory |
| markup | means an additional markup of the original retail price |
| markup cancellations | decreases in prices of merchandise that the retailer had marked up above the original retail price |
| markdowns | decreases in the original sales prices |
| markdown cancellations | occur when the markdowns are later offset by increases in the prices of goods that the retailer had marked down—such as after a one-day sale |
| LIFO retail method | retail method und LIFO |
Created by:
ryanriggs18
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