西方财务会计 原版课件09.ppt

C H A P T E R 9;Describe and apply the lower-of-cost-or-market rule. Explain when companies value inventories at net realizable value. Explain when companies use the relative sales value method to value inventories. Discuss accounting issues related to purchase commitments. Determine ending inventory by applying the gross profit method. Determine ending inventory by applying the retail inventory method. Explain how to report and analyze inventory.;Net realizable value Relative sales value Purchase commitments;Market = Replacement Cost Lower of Cost or Replacement Cost Loss should be recorded when loss occurs, not in the period of sale.;Decline in the RC usually = decline in selling price. RC allows a consistent rate of gross profit. If reduction in RC fails to indicate reduction in utility, then two additional valuation limitations are used: Ceiling - net realizable value and Floor - net realizable value less a normal profit margin.;Not <;Ceiling – prevents overstatement of the value of obsolete, damaged, or shopworn inventories. Floor – deters understatement of inventory and overstatement of the loss in the current period.;Lower-of-Cost-or-Market;Lower-of-Cost-or-Market;LO 1 Describe and apply the lower-of-cost-or-market rule.;LO 1 Describe and apply the lower-of-cost-or-market rule.;LO 1 Describe and apply the lower-of-cost-or-market rule.;P9-1: KC Company manufactures desks. The company attempts to obtain a 20% gross margin on selling price. At December 31, 2010, the following finished desks appear in the company’s inventory.;Not <;Not <;Not <;Not <;Expense recorded when loss in utility occurs. Profit on sale recognized at the point of sale. Inventory valued at cost in one year and at market in the next year. Net income in year of loss is lower. Net income in subsequent period may be higher than normal if expected reductions in sales price do not materialize. LCM uses a “normal profit” in determining inventory values, which is a subjective measure. ;a con