Questions -
Q1. The following information relates to Broom Company's inventory:
Historical Cost $10,000
Net Realizable Value 7,000
Replacement Cost (Market Value) 5,000
Net Realizable Value less normal profit 4,500
Which two amounts would Broom Company compare to determine whether its inventory should be written down according to 1) IFRS 2) US GAAP? How much would the inventory be written down according to 1) IFRS 2) US GAAP?
2. The following information relates to an inventory item of Sanchez Company. Sanchez's normal profit margin is 10%.
Historical cost $50,000
Replacement cost (Market Value) 40,000
Estimated selling price 44,000
Estimated cost to complete and sell 8,000
Net Realizable Value 36,000
Assuming Sanchez Company follows IFRS, determine the amount at which inventory should be reported on the Sanchez Company's December 31, 2008 balance sheet. At what amount would inventory be reported following US GAAP?
3. Loudon Company has inventory on hand with a historical cost of $6,000. It estimates that it would cost $4,500 to replace the inventory. The inventory's estimated selling price is $5,500 and its estimated cost to complete and sell is $500. Assuming the company's normal profit margin is 15%, record the journal entries to write down the inventory under a) IFRS and b) US GAAP.
4. Jeffers Company purchased inventory for $10,000. The current cost to replace the inventory is $9,300. The company estimates it can sell the inventory for $9,700 but will have to spend $300 to complete the inventory. The company's normal profit margin is 12%. How much would the company need to write down the inventory assuming it follows a) IFRS b) US GAAP? Assume that next period the selling price increases to $9,900, the replacement cost increases to $9,500 and the estimated cost to complete remains $300. How would the company reverse the prior write down using a) IFRS b) US GAAP?