Question
Inventory Write-Down Palmquist Company has five different inventory items and applies the inventory valuation rules on an individual item basis. The normal markup on all
Inventory Write-Down
Palmquist Company has five different inventory items and applies the inventory valuation rules on an individual item basis. The normal markup on all items is 20% of cost. The following information is obtained from the companys records:
Item | Units | Cost | Replacement Cost | Net Realizable Value |
1 | 500 | $10.00 | $ 9.10 | $ 9.20 |
2 | 400 | 8.00 | 8.10 | 7.80 |
3 | 300 | 15.00 | 13.50 | 14.00 |
4 | 200 | 18.00 | 12.00 | 17.00 |
5 | 100 | 25.00 | 25.50 | 25.30 |
Required:
1. Assume that Palmquist uses the FIFO cost flow assumption. Compute the correct inventory value under the lower of cost or net realizable value rule. Round your answers to the nearest cent.
Item | Lower of Cost or NRV | |
1 | $ fill in the blank 1 | |
2 | fill in the blank 2 | |
3 | fill in the blank 3 | |
4 | fill in the blank 4 | |
5 | fill in the blank 5 |
Compute the total inventory value if the lower of cost or net realizable value is applied to each individual item.
($ fill in the blank 6) 2. Assume that Palmquist uses the LIFO cost flow assumption. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.
Item | Lower of Cost or Market | |
1 | $ fill in the blank 7 | |
2 | fill in the blank 8 | |
3 | fill in the blank 9 | |
4 | fill in the blank 10 | |
5 | fill in the blank 11 |
Compute the total inventory value if the lower of cost or market is applied to each individual item.
($ fill in the blank 12) 3. Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or net realizable value rule. Round your answers to the nearest cent.
Item | Lower of Cost or NRV | |
1 | $ fill in the blank 13 | |
2 | fill in the blank 14 | |
3 | fill in the blank 15 | |
4 | fill in the blank 16 | |
5 | fill in the blank 17 |
Compute the total inventory value if the lower of cost or market is applied to each individual item.
($ fill in the blank 18)
4. Explain the differences between the inventory valuations reported under IFRS and U.S. GAAP. The inventory valuation reported under IFRS is (equal to/greater than/less than) the inventory valuation reported under U.S. GAAP. This difference arises because IFRS define market value as (actual cost/net realizable value/replacement cost or net realizable value minus a normal profit margin) and do not consider (actual cost/net realizable value/replacement cost or net realizable value minus a normal profit margin). Therefore, IFRS will result in market values that are always greater than or equal to those reported under U.S. GAAP. Because some of the U.S. GAAP inventory (items 1, 3, and 4) was valued at either replacement cost or net realizable value minus a normal profit margin, the IFRS lower of cost or market valuation of inventory will be (equal to/greater than/less than) the U.S. GAAP inventory valuation.
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