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- Accounting for Declines and Recoveries of Inventory Value Hatsumei Enterprises, a hypothetical company, manufactures computers and prepares its financial statements in accordance with IFRS.

- Accounting for Declines and Recoveries of Inventory Value

Hatsumei Enterprises, a hypothetical company, manufactures computers and prepares its financial statements in accordance with IFRS. In 2017, the cost of ending inventory was 5.2 million but its net realisable value was 4.9 million. The current replacement cost of the inventory is 4.7 million. This figure exceeds the net realisable value less a normal profit margin. In 2018, the net realisable value of Hatsumeis inventory was 0.5 million greater than the carrying amount.

  1. What was the effect of the write-down on Hatsumeis 2017 financial statements? What was the effect of the recovery on Hatsumeis 2018 financial statements?
  2. Under US GAAP, if Hatsumei used the LIFO method, what would be the effects of the write-down on Hatsumeis 2017 financial statements and of the recovery on Hatsumeis 2018 financial statements?
  3. What would be the effect of the recovery on Hatsumeis 2018 financial statements if Hatsumeis inventory were agricultural products instead of computers?

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