Lower of Cost or Market

Palmquist Company has five different inventory items that it values by the lower of cost or market rule applied 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:

Assume that Palmquist uses the FIFO inventory valuation method. 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		$
2
3
4
5

Compute the total inventory value if the lower of cost or market is applied to each individual item.

$

Assume that Palmquist uses the LIFO inventory method. 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		$
2
3
4
5

Compute the total inventory value if the lower of cost or market is applied to each individual item.

$

Assume that Palmquist uses IFRS. 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		$
2
3
4
5

Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or market rule.

$

Explain the differences between the inventory valuations reported under IFRS and U.S. GAAP. The inventory valuation reported under IFRS is the inventory valuation reported under U.S. GAAP. This difference arises because IFRS define market value as and do not consider . 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 the U.S. GAAP inventory valuation.