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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 |