存货 额外的评估问题ch09

CHAPTER9Inventories:AdditionalValuationIssuesASSIGNMENTCLASSIFICATIONTABLE(BYTOPIC)BriefConceptsTopicsQuestionsExercisesExercisesProblemsforAnalysis1.Lowerofcostormarket.1,2,3,1,2,31,2,3,1,2,3,1,2,34,5,64,5,69,102.Inventoryaccounting7,847,87,114changes;relativesalesvaluemethod;netreal-izablevalue.3.Purchasecommitments.95,69,1094.Grossprofitmethod.10,11,711,12,13,4,512,1314,15,16,175.Retailinventorymethod.14,15,16818,19,20,6,7,8,4,5,622,23,2610,116.Presentationand17,189219analysis.*7.LIFOretail.191022,2312,13,147*8.Dollar-valueLIFOretail.1124,25,11,1326,27*9.SpecialLIFOproblems.2813,14*ThismaterialisdiscussedinanAppendixtothechapter.9-1SchoolofManagement,HUSTASSIGNMENTCLASSIFICATIONTABLE(BYLEARNINGOBJECTIVE)BriefLearningObjectivesExercisesExercisesProblems1.Describeandapplythelower-of-cost-ormarketrule.1,2,31,2,3,1,2,3,4,5,69,102.Explainwhencompaniesvalueinventoriesatnet1,2,31,2,3,1,2,3,realizablevalue.4,5,69,103.Explainwhencompaniesusetherelativesalesvalue47,8methodtovalueinventories.4.Discussaccountingissuesrelatedtopurchase5,69,109commitments.5.Determineendinginventorybyapplyingthegross711,12,13,4,5profitmethod.14,15,16,176.Determineendinginventorybyapplyingtheretail818,19,206,7,8inventorymethod.7.Explainhowtoreportandanalyzeinventory.9219*8.DetermineendinginventorybyapplyingtheLIFO10,1122,23,24,11,12,retailmethods.25,26,27,13,1428*ThismaterialisdiscussedinanAppendixtothechapter.9-2SchoolofManagement,HUSTASSIGNMENTCHARACTERISTICSTABLELevelofTimeItemDescriptionDifficulty(minutes)E9-1Lower-of-cost-or-market.Simple15–20E9-2Lower-of-cost-or-market.Simple10–15E9-3Lower-of-cost-or-market.Simple15–20E9-4Lower-of-cost-or-market—journalentries.Simple10–15E9-5Lower-of-cost-or-market—valuationaccount.Moderate20–25E9-6Lower-of-cost-or-market—erroreffect.Simple10–15E9-7Relativesalesvaluemethod.Simple15–20E9-8Relativesalesvaluemethod.Simple12–17E9-9Purchasecommitments.Simple05–10E9-10Purchasecommitments.Simple15–20E9-11Grossprofitmethod.Simple8–13E9-12Grossprofitmethod.Simple10–15E9-13Grossprofitmethod.Simple15–20E9-14Grossprofitmethod.Moderate15–20E9-15Grossprofitmethod.Simple10–15E9-16Grossprofitmethod.Simple15–20E9-17Grossprofitmethod.Moderate20–25E9-18Retailinventorymethod.Moderate20–25E9-19Retailinventorymethod.Simple12–17E9-20Retailinventorymethod.Simple20–25E9-21Analysisofinventories.Simple10–15*E9-22Retailinventorymethod—conventionalandLIFO.Moderate25–35*E9-23Retailinventorymethod—conventionalandLIFO.Moderate15–20*E9-24Dollar-valueLIFOretail.Simple10–15*E9-25Dollar-valueLIFOretail.Simple5–10*E9-26Conventionalretailanddollar-valueLIFOretail.Moderate20–25*E9-27Dollar-valueLIFOretail.Moderate20–25*E9-28ChangetoLIFOretail.Simple10–15P9-1Lower-of-cost-or-market.Simple10–15P9-2Lower-of-cost-or-market.Moderate25–30P9-3Entriesforlower-of-cost-or-market—directModerate30–35andallowance.P9-4Grossprofitmethod.Moderate20–30P9-5Grossprofitmethod.Complex40–45P9-6Retailinventorymethod.Moderate20–30P9-7Retailinventorymethod.Moderate20–309-3SchoolofManagement,HUSTASSIGNMENTCHARACTERISTICSTABLE(Continued)LevelofTimeItemDescriptionDifficulty(minutes)P9-8Retailinventorymethod.Moderate20–30P9-9Statementandnotedisclosure,LCM,andpurchaseModerate30–40commitment.P9-10Lowerofcostormarket.Moderate30–40*P9-11Conventionalanddollar-valueLIFOretail.Moderate30–35*P9-12Retail,LIFOretail,andinventoryshortage.Moderate30–40*P9-13ChangetoLIFOretail.Moderate30–40*P9-14ChangetoLIFOretail;dollar-valueLIFOretail.Complex40–50CA9-1Lower-of-cost-or-market.Moderate15–25CA9-2Lower-of-cost-or-market.Moderate20–30CA9-3Lower-of-cost-or-market.Moderate15–20CA9-4Retailinventorymethod.Moderate25–30CA9-5Costdetermination,LCM,retailmethod.Moderate15–25CA9-6Purchasecommitment.Moderate20–25*CA9-7RetailinventorymethodandLIFOretail.Simple10–159-4SchoolofManagement,HUSTANSWERSTOQUESTIONS1.Wherethereisevidencethattheutilityofgoodstobedisposedofintheordinarycourseofbusi-nesswillbelessthancost,thedifferenceshouldberecognizedasalossinthecurrentperiod,andtheinventoryshouldbestatedatmarketvalueinthefinancialstatements.2.Theupper(ceiling)andlower(floor)limitsforthevalueoftheinventoryareintendedtopreventtheinventoryfrombeingreportedatanamountinexcessofthenetrealizablevalueoratanamountlessthanthenetrealizablevaluelessanormalprofitmargin.Themaximumlimitation,nottoexceedthenetrealizablevalue(ceiling)coversobsolete,damaged,orshopwornmaterialandpreventsoverstatementofinventoriesandunderstatementofthelossinthecurrentperiod.Theminimumlimitationdetersunderstatementofinventoryandoverstatementofthelossinthecurrentperiod.3.Theusualbasisforcarryingforwardtheinventorytothenextperiodiscost.Departurefromcostisrequired,however,whentheutilityofthegoodsincludedintheinventoryislessthantheircost.Thislossinutilityshouldberecognizedasalossofthecurrentperiod,theperiodinwhichitoccurred.Furthermore,thesubsequentperiodshouldbechargedforgoodsatanamountthatmeasurestheirexpectedcontributiontothatperiod.Inotherwords,thesubsequentperiodshouldbechargedforinventoryatpricesnohigherthanthosewhichwouldhavebeenpaidiftheinventoryhadbeenobtainedatthebeginningofthatperiod.(Historically,thelowerofcostormarketrulearosefromtheaccountingconventionofprovidingforalllossesandanticipatingnoprofits.)Inaccordancewiththeforegoingreasoning,theruleof“costormarket,whicheverislower”maybeappliedtoeachitemintheinventory,tothetotalofthecomponentsofeachmajorcategory,ortothetotaloftheinventory,whichevermostclearlyreflectsoperations.Theruleisusuallyappliedtoeachitem,butifindividualinventoryitemsenterintothesamecategoryorcategoriesoffinishedproduct,alternativeproceduresaresuitable.Theargumentsagainsttheuseofthelowerofcostormarketmethodofvaluinginventoriesincludethefollowing:(1)Themethodrequiresthereportingofestimatedlosses(alloraportionoftheexcessofactualcostoverreplacementcost)asdefiniteincomechargeseventhoughthelosseshavenotbeensustainedtodateandmayneverbesustained.Underaconsistentcriterionofrealizationadropinreplacementcostbeloworiginalcostisnomoreasustainedlossthanariseabovecostisarealizedgain.(2)Apriceshrinkageisbroughtintotheincomestatementbeforethelosshasbeensustainedthroughsale.Furthermore,ifthechargefortheinventorywrite-downsisnotmadetoaspeciallossaccount,thecostfigureforgoodsactuallysoldisinflatedbytheamountoftheestimatedshrinkageinpriceoftheunsoldgoods.Thetitle“CostofGoodsSold”thereforebecomesamisnomer.(3)Themethodisinconsistentinapplicationinagivenyearbecauseitrecognizestheproprietyofimpliedpricereductionsbutgivesnorecognitionintheaccountsorfinancialstatementstotheeffectofthepriceincreases.(4)Themethodisalsoinconsistentinapplicationinoneyearasopposedtoanotherbecausetheinventoryofacompanymaybevaluedatcostinoneyearandatmarketinthenextyear.(5)Thelowerofcostormarketmethodvaluestheinventoryinthebalancesheetconservatively.Itseffectontheincomestatement,however,maybetheopposite.Althoughtheincomestatementfortheyearinwhichtheunsustainedlossistakenisstatedconservatively,thenetincomeontheincomestatementofthesubsequentperiodmaybedistortediftheexpectedreductionsinsalespricesdonotmaterialize.9-5SchoolofManagement,HUSTQuestionsChapter9(Continued)(6)Intheapplicationofthelowerofcostormarketruleaprospective“normalprofit”isusedindetermininginventoryvaluesincertaincases.Since“normalprofit”isanestimatedfigurebaseduponpastexperiences(andmightnotbeattainedinthefuture),itisnotobjectiveinnatureandpresentsanopportunityformanipulationoftheresultsofoperations.4.Thelowerofcostormarketrulemaybeapplieddirectlytoeachitemortothetotalofthein-ventory(orinsomecases,tothetotalofthecomponentsofeachmajorcategory).Themethodshouldbetheonethatmostclearlyreflectsincome.Themostcommonpracticeistopricetheinventoryonanitem-by-itembasis.Companiesfavortheindividualitemapproachbecausetaxrequirementsrequirethatanindividualitembasisbeusedunlessitinvolvespracticaldifficulties.Inaddition,theindividualitemapproachgivesthemostconservativevaluationforbalancesheetpurposes.5.1.$14.30.2.$16.10.3.$13.75.4.$9.70.5.$15.90.6.Oneapproachistorecordtheinventoryatcostandthenreduceittomarket,therebyreflectingalossinthecurrentperiod(oftenreferredtoastheindirectmethod).Thelosswouldthenbeshownasaseparateitemintheincomestatementandthecostofgoodssoldfortheyearwouldnotbedistortedbyitsinclusion.Anobjectiontothismethodofvaluationisthataninconsistencyiscreatedbetweentheincomestatementandbalancesheet.Inattemptingtomeetthisinconsistencysomehaveadvocatedtheuseofaspecialaccounttoreceivethecreditforsuchaninventorywrite-down,suchasAllowancetoReduceInventorytoMarketwhichisacontraaccountagainstinventoryonthebalancesheet.Itshouldbenotedthatthedispositionofthisaccountpresentsproblemstoaccountants.Anotherapproachismerelytosubstitutemarketforcostwhenpricingthenewinventory(oftenreferredtoasthedirectmethod).Suchaprocedureincreasescostofgoodssoldbytheamountofthelossandfailstoreflectthislossseparately.Forthisreason,manytheoreticalobjectionscanberaisedagainstthisprocedure.7.Anexceptiontothenormalrecognitionruleoccurswhere(1)thereisacontrolledmarketwithaquotedpriceapplicabletospecificcommoditiesand(2)nosignificantcostsofdisposalareinvolved.Certainagriculturalproductsandpreciousmetalswhichareimmediatelymarketableatquotedpricesareoftenvaluedatnetrealizablevalue(marketprice).8.Relativesalesvalueisanappropriatebasisforpricinginventorywhenagroupofvaryingunitsispurchasedatasinglelumpsumprice(basketpurchase).Thepurchasepricemustbeallocatedinsomemanneroronsomebasisamongthevariousunits.Whentheunitsvaryinsize,character,andattractiveness,thebasisforallocationmustreflectbothquantitativeandqualitativeaspects.Asuitablebasisthenistherelativesalesvalueoftheunitsthatcomprisetheinventory.9.Thedropinthemarketpriceofthecommitmentshouldbechargedtooperationsinthecurrentyearifitismaterialinamount.Thefollowingentrywouldbemade[($6.40–$5.90)X150,000]=$75,000:UnrealizedHoldingGainorLoss—Income(PurchaseCommitments)........75,000EstimatedLiabilityonPurchaseCommitments...............................75,000Theentryismadebecausealossinutilityhasoccurredduringtheperiodinwhichthemarketdeclinetookplace.Theaccountcreditedintheaboveentryshouldbeincludedamongthecurrentliabilitiesonthebalancesheetwithanappropriatenoteindicatingthenatureandextentofthecommitment.Thisliabilityindicatestheminimumobligationonthecommitmentcontractatthepresenttime—theamountthatwouldhavetobeforfeitedincaseofbreachofcontract.9-6SchoolofManagement,HUSTQuestionsChapter9(Continued)10.Themajorusesofthegrossprofitmethodare:(1)itprovidesanapproximationoftheendingin-ventorywhichtheauditormightusefortestingvalidityofphysicalinventorycount;(2)itmeansthataphysicalcountneednotbetakeneverymonthorquarter;and(3)ithelpsindeterminingdamagescausedbycasualtywheninventorycannotbecounted.11.Grossprofitasapercentageofsalesindicatesthatthemarginisbasedonsellingpriceratherthancost;forthisreasonthegrossprofitasapercentageofsellingpricewillalwaysbelowerthanifbasedoncost.Conversionsareasfollows:20%oncost=162/3%onsellingprice331/3%oncost=25%onsellingprice331/3%onsellingprice=50%oncost60%onsellingprice=150%oncost12.Amarkupof25%oncostequalsa20%markuponsellingprice;therefore,grossprofitequals$1,200,000($6millionX20%)andnetincomeequals$300,000[$1,200,000–(15%X$6million)].Thefollowingformulawasusedtocomputethe20%markuponsellingprice:Percentagemarkuponcost.25Grossprofitonsellingprice===20%100%+Percentagemarkuponcost1+.2513.Inventory,January1,2008$400,000PurchasestoFebruary10,2008$1,140,000Freight-intoFebruary10,200860,0001,200,000Merchandiseavailable1,600,000SalestoFebruary10,20081,750,000Lessgrossprofitat40%700,000Salesatcost1,050,000Inventory(approximately)atFebruary10,2008$550,00014.Thevalidityoftheretailinventorymethodisdependentupon(1)thecompositionoftheinventoryremainingapproximatelythesameattheendoftheperiodasitwasduringtheperiod,and(2)therebeingapproximatelythesamerateofmarkupattheendoftheyearaswasusedthroughouttheperiod.Theretailmethod,thoughordinarilyappliedonadepartmentalbasis,maybeappropriateforthebusinessasaunitiftheaboveconditionsaremet.15.Theconventionalretailmethodisastatisticalprocedurebasedonaverageswherebyinventoryfiguresatretailarereducedtoaninventoryvaluationfigurebymultiplyingtheretailfiguresbyapercentagewhichisthecomplementofthemarkuppercent.Todeterminethemarkuppercent,originalmarkupsandadditionalnetmarkupsarerelatedtotheoriginalcost.Thecomplementofthemarkuppercentsodeterminedisthenappliedtotheinventoryatretailafterthelatterhasbeenreducedbynetmarkdowns,thusineffectachievingalowerofcostormarketvaluation.Anexampleofreductiontomarketfollows:Assumepurchaseof100itemsat$1each,markedtosellat$1.50each,atwhichprice80weresold.Theremaining20aremarkeddownto$1.15each.Theinventoryat$15.33is$4.67beloworiginalcostandisvaluedatanamountwhichwillproducethe“normal”331/3%grossprofitifsoldatthepresentretailpriceof$23.00.9-7SchoolofManagement,HUSTQuestionsChapter9(Continued)ComputationofInventoryCostRetailRatioPurchases$100$150662/3%Sales(120)Markdowns(20X$.35)(7)Inventoryatretail$23Inventoryatlowerofcostormarket$23X662/3%=$15.3316.(a)Endinginventory:CostRetailBeginninginventory$149,000$283,500Purchases1,400,0002,160,000Freight-in70,0000Totals1,619,0002,443,500Addnetmarkups_________92,000$1,619,0002,535,500Deductnetmarkdowns48,0002,487,500Deductsales2,235,000Endinginventory,atretail$252,500$1,619,000Ratioofcosttosellingprice=64%.$2,535,500Endinginventoryestimatedatcost=64%X$252,500=$161,600.(b)Theretailmethod,above,showedanendinginventoryatretailof$252,500;therefore,merchandisenotaccountedforamountsto$12,500($252,500–$240,000)atretailand$8,000($12,500X.64)atcost.17.Informationrelativetothecompositionoftheinventory(i.e.,rawmaterial,work-in-process,andfinishedgoods);theinventoryfinancingwheresignificantorunusual(transactionswithrelatedparties,productfinancingarrangements,firmpurchasecommitments,involuntaryliquidationsofLIFOinventories,pledginginventoriesascollateral);andtheinventorycostingmethodsemployed(lowerofcostormarket,FIFO,LIFO,averagecost)shouldbedisclosed.BecauseDeereCompanyusesLIFO,itshouldalsoreporttheLIFORESERVE.18.Inventoryturnovermeasureshowquicklyinventoryissold.Generally,thehighertheinventoryturnover,thebettertheenterpriseisperforming.Themoretimestheinventoryturnsover,thesmallerthenetmargincanbetoearnanappropriatetotalprofitandreturnonassets.Forexample,acompanycanpriceitsgoodslowerifithasahighinventoryturnover.Acompanywithalowprofitmargin,suchas2%,canearnasmuchasacompanywithahighnetprofitmargin,suchas40%,ifitsinventoryturnoverisoftenenough.Toillustrate,agrocerystorewitha2%profitmargincanearnasmuchasajewelrystorewitha40%profitmarginandaninventoryturnoverof1ifitsturnoverismorethan20times.*19.Twomajormodificationsarenecessary.First,thebeginninginventoryshouldbeexcludedfromthenumeratoranddenominatorofthecosttoretailpercentageandsecond,markdownsshouldbeincludedinthedenominatorofthecosttoretailpercentage.9-8SchoolofManagement,HUSTSOLUTIONSTOBRIEFEXERCISESBRIEFEXERCISE9-1(a)Ceiling$198.00($217–$19)Floor$166.00($217–$19–$32)(b)$106.00(c)$51.00BRIEFEXERCISE9-2DesignatedItemCostMarketLCMJokers$2,000$1,900$1,900Penguins5,0004,9504,950Riddlers4,4004,5504,400Scarecrows3,2003,0703,070BRIEFEXERCISE9-3(a)DirectmethodCostofGoodsSold...........................................................17,000Inventory................................................................17,000(b)IndirectmethodLossDuetoMarketDeclineofInventory.......................17,000AllowancetoReduceInventorytoMarket............17,0009-9SchoolofManagement,HUSTBRIEFEXERCISE9-4SalesTotalRelativeCostNumberPriceSalesSalesTotalAllocatedCostGroupofCDsperCDPricePriceCosttoCDsperCD1100$5$5005/100*X$6,000=$300$3**2800$108,00080/100X$6,000=4,800$63100$151,50015/100X$6,000=900$9$10,000$6,000*$500/$10,000=5/100**$300/100=$3BRIEFEXERCISE9-5UnrealizedHoldingLoss—Income(PurchaseCommitments)................................................................70,000EstimatedLiabilityonPurchaseCommitments........................................................70,000BRIEFEXERCISE9-6Purchases(Inventory).......................................................930,000EstimatedLiabilityonPurchaseCommitments............70,000Cash...........................................................................1,000,000BRIEFEXERCISE9-7Beginninginventory$150,000Purchases500,000Costofgoodsavailable650,000Sales$700,000Lessgrossprofit(31%X700,000)217,000Estimatedcostofgoodssold483,000Estimatedendinginventorydestroyedinfire$167,0009-10SchoolofManagement,HUSTBRIEFEXERCISE9-8CostRetailBeginninginventory$12,000$20,000Netpurchases120,000170,000Netmarkups10,000Totals$132,000200,000Deduct:Netmarkdowns7,000Sales157,000Endinginventoryatretail$36,000Cost-to-retailratio:$132,000÷$200,000=66%Endinginventoryatlowerofcostormarket(66%X$36,000)=$23,760BRIEFEXERCISE9-9Inventoryturnover:$198,747=7.79times$26,612+$24,4012Averagedaystosellinventory:365÷7.79=46.9days9-11SchoolofManagement,HUST*BRIEFEXERCISE9-10CostRetailBeginninginventory$12,000$20,000Netpurchases120,000170,000Netmarkups10,000Netmarkdowns_______(7,000)Total(excludingbeginninginventory)120,000173,000Total(includingbeginninginventory)$132,000193,000Deduct:Sales157,000Endinginventoryatretail$36,000Cost-to-retailratio:$120,000÷$173,000=69.4%Endinginventoryatcost$20,000X60%($12,000/$20,000)=$12,00016,000X69.4%=11,104$36,000$23,104*BRIEFEXERCISE9-11CostRetailBeginninginventory$12,000$20,000Netpurchases120,000170,000Netmarkups10,000Netmarkdowns_______(7,000)Total(excludingbeginninginventory)120,000173,000Total(includingbeginninginventory)$132,000193,000Deduct:Sales157,000Endinginventoryatretail$36,0009-12SchoolofManagement,HUST*BRIEFEXERCISE9-11(Continued)Cost-to-retailratio:$120,000÷$173,000=69.4%Endinginventoryatretaildeflatedtobaseyearprices$36,000÷1.20=$30,000Endinginventoryatcost$20,000X100%X60%=$12,00010,000X120%X69.4%=8,328$20,3289-13SchoolofManagement,HUSTSOLUTIONSTOEXERCISESEXERCISE9-1(15–20minutes)PerUnitLowerofTotalTotalCostorPartNo.QuantityCostMarketCostMarketMarket110600$90$100.00$54,000$60,000$54,0001111,0006052.0060,00052,00052,0001125008076.0040,00038,00038,000113200170180.0034,00036,00034,000120400205208.0082,00083,20082,0001211,600160.2025,600320320122300240235.0072,00070,50070,500Totals$367,600$340,020$330,820(a)$330,820.(b)$340,020.EXERCISE9-2(10–15minutes)NetRealizableValueNetLessRealizableNormalValueProfitReplacementDesignatedItem(Ceiling)(Floor)CostMarketCostLCMD$90*$70**$120$90$75$75E806072728072F654570658065G654530458045H806070705050I604030403636*Estimatedsellingprice–Estimatedsellingexpense=$120–$30=$90.**Netrealizablevalue–Normalprofitmargin=$90–$20=$70.9-14SchoolofManagement,HUSTEXERCISE9-3(15–20minutes)NetReal.ValueCostNetLessDesignatedFinalItemperReplacementRealizableNormalMarketInventoryNo.UnitCostValueProfitValueQuantityValue1320$3.20$3.00$4.15*$2.90**$3.001,200$3,60013332.702.303.002.502.509002,25014264.503.704.603.603.708002,96014373.603.102.952.052.951,0002,95015102.252.002.451.852.007001,40015223.002.703.402.902.905001,45015731.801.601.751.251.603,0004,80016264.705.205.504.505.201,0004,700***$24,110*$4.50–$.35=$4.15.**$4.15–$1.25=$2.90.***Costisusedbecauseitislowerthandesignatedmarketvalue.EXERCISE9-4(10–15minutes)(a)12/31/07CostofGoodsSold................................19,000Inventory................................................................19,00012/31/08CostofGoodsSold................................15,000Inventory................................................................15,000(b)12/31/07LossDuetoMarketDeclineofInventory................................................................19,000AllowancetoReduceInventorytoMarket................................................................19,00012/31/08AllowancetoReduceInventorytoMarket................................................................4,000*RecoveryofLossDuetoMarketDeclineofInventory................................4,0009-15SchoolofManagement,HUSTEXERCISE9-4(Continued)*Costofinventoryat12/31/07$346,000Lowerofcostormarketat12/31/07(327,000)Allowanceamountneededtoreduceinventorytomarket(a)$19,000Costofinventoryat12/31/08$410,000Lowerofcostormarketat12/31/08(395,000)Allowanceamountneededtoreduceinventorytomarket(b)$15,000Recoveryofpreviouslyrecognizedloss=(a