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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-1
CHAPTER 9
Inventories: Additional Valuation Issues
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Topics
Questions
Brief
Exercises
Exercises
Problems
Concepts
for Analysis
1.
1, 2, 3,
4, 5
1, 2, 3
1, 2, 3,
4, 5, 6
1, 2, 3,
10, 11
1, 2, 3, 5
2.
6, 7, 8
4, 5, 6
7, 8, 9, 10
4
3.
9
7, 8
11, 12
10
6
4.
10, 11,
12, 13
9
13, 14, 15,
16, 17,
18, 19
5, 6
5.
14, 15, 16
10
20, 21, 22
7, 8, 9
4, 5
6.
17, 18
11
23
10
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9-2 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Learning Objectives
Brief
Exercises
Exercises
Problems
Concepts
for
Analysis
1. Describe and apply the lower-of-cost-or-net realizable
value rule.
1, 2, 3
1, 2, 3,
4, 5, 6
1, 2, 3,
10, 11
1, 2, 3, 5
2. Identify other inventory valuation issues.
4, 5, 6, 7, 8
7, 8, 9, 10,
11, 12
4, 10
6
3. Determine ending inventory by applying the gross profit
method.
9
13, 14, 15,
16, 17,
18, 19
5, 6
4. Determine ending inventory by applying the retail
inventory method.
10
20, 21, 22
7, 8, 9
4, 5
5. Explain how to report and analyze inventory.
11
23
10
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-3
ASSIGNMENT CHARACTERISTICS TABLE
Item
Description
Level of
Difficulty
Time
(minutes)
E9.1
LCNRV.
Simple
1520
E9.2
LCNRV.
Simple
1015
E9.3
LCNRV.
Simple
1520
E9.4
LCNRVjournal entries.
Simple
1015
E9.5
LCNRVvaluation account.
Moderate
2025
E9.6
LCNRVerror effect.
Simple
1015
E9.7
Valuation at net realizable value.
Simple
1015
E9.8
Valuation at net realizable value.
Simple
1015
E9.9
Relative standalone sales value method.
Simple
1520
E9.10
Relative standalone sales value method.
Simple
1217
E9.11
Purchase commitments.
Simple
0510
E9.12
Purchase commitments.
Simple
1520
E9.13
Gross profit method.
Simple
813
E9.14
Gross profit method.
Simple
1015
E9.15
Gross profit method.
Simple
1520
E9.16
Gross profit method.
Moderate
1520
E9.17
Gross profit method.
Simple
1015
E9.18
Gross profit method.
Simple
1520
E9.19
Gross profit method.
Moderate
2025
E9.20
Retail inventory method.
Moderate
2025
E9.21
Retail inventory method.
Simple
1217
E9.22
Retail inventory method.
Simple
2025
E9.23
Analysis of inventories.
Simple
1015
P9.1
LCNRV.
Simple
1015
P9.2
LCNRV.
Moderate
2530
P9.3
LCNRVCost-of-goods-sold and loss.
Moderate
3035
P9.4
Valuation at net realizable value.
Simple
1520
P9.5
Gross profit method.
Moderate
2030
P9.6
Gross profit method.
Complex
4045
P9.7
Retail inventory method.
Moderate
2030
P9.8
Retail inventory method.
Moderate
2030
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9-4 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Item
Description
Level of
Difficulty
Time
(minutes)
P9.9
Retail inventory method.
Moderate
2030
P9.10
Statement and note disclosure, LCNRV, and purchase
commitment.
Moderate
3040
P9.11
LCNRV.
Moderate
3040
CA9.1
LCNRV.
Moderate
1525
CA9.2
LCNRV.
Moderate
2030
CA9.3
LCNRV.
Moderate
1520
CA9.4
Retail inventory method.
Moderate
2530
CA9.5
Cost determination, LCNRV, retail method.
Moderate
1525
CA9.6
Purchase commitments.
Moderate
1015
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-5
ANSWERS TO QUESTIONS
1. Where there is evidence that the utility of goods to be disposed of in the ordinary course of
business will be less than cost, the difference should be recognized as a loss in the current period,
and the inventory should be stated at net realizable value in the financial statements.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. The usual basis for carrying forward the inventory to the next period is cost. Departure from cost is
required; however, when the utility of the goods included in the inventory is less than their cost,
this loss in utility should be recognized as a loss of the current period, the period in which it
occurred. Furthermore, the subsequent period should be charged for goods at an amount that
measures their expected contribution to that period. In other words, the subsequent period should
be charged for inventory at prices no higher than those which would have been paid if the
inventory had been obtained at the beginning of that period. (Historically, the lower-of-cost-or-net
realizable value rule arose from the accounting convention of providing for all losses and
anticipating no profits.)
In accordance with the foregoing reasoning, the rule of “cost or net realizable value, whichever is
lower” may be applied to each item in the inventory, to the total of the components of each major
category, or to the total of the inventory, whichever most clearly reflects operations. The rule is
usually applied to each item, but if individual inventory items enter into the same category or
categories of finished product, alternative procedures are suitable.
The arguments against the use of the lower-of-cost-or-net realizable value method of valuing
inventories include the following:
(a) The method requires the reporting of estimated losses (all or a portion of the excess of actual
cost over net realizable value) as definite income charges even though the losses have not
been sustained to date and may never be sustained. Under a consistent criterion of
realization, a drop in net realizable value below original cost is no more a sustained loss than
a rise above cost is a realized gain.
(b) A price shrinkage is brought into the income statement before the loss has been sustained
through sale. Furthermore, if the charge for the inventory write-downs is not made to a special
loss account, the cost figure for goods actually sold is inflated by the amount of the estimated
shrinkage in price of the unsold goods. The title Cost of Goods Sold” therefore becomes a
misnomer.
(c) The method is inconsistent in application in a given year because it recognizes the propriety
of implied price reductions but gives no recognition in the accounts or financial statements to
the effect of the price increases.
(d) The method is also inconsistent in application in one year as opposed to another because the
inventory of a company may be valued at cost in one year and at net realizable value in the
next year.
(e) The lower-of-cost-or-net realizable value method values the inventory in the statement of
financial position conservatively. Its effect on the income statement, however, may be the
opposite. Although the income statement for the year in which the unsustained loss is taken is
stated conservatively, the net income on the income statement of the subsequent period may
be distorted if the expected reductions in sales prices do not materialize.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
3. The lower-of-cost-or-net realizable value rule may be applied directly to each item or to the total of
the inventory (or in some cases, to the total of the components of each major category). The
method should be the one that most clearly reflects income. The most common practice is to price
the inventory on an item-by-item basis. Companies favor the individual item approach because tax
requirements in some countries require that an individual item basis be used unless it involves
practical difficulties. In addition, the individual item approach gives the most conservative valuation
on the statement of financial position.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
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9-6 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 9 (Continued)
4. (1) 12.80.
(2) 16.10.
(3) 13.00.
(4) 9.20.
(5) 15.90.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
5. One approach is to record the inventory at cost and then reduce it to net realizable value, thereby
reflecting a loss in the current period (often referred to as the loss method). The loss would then
be shown as a separate item in the income statement and the cost of goods sold for the year
would not be distorted by its inclusion. Companies may record the adjustment either directly to the
Inventory account or use the Allowance to Reduce Inventory to Net Realizable Value which is a
contra account against inventory on the statement of financial position.
Another approach is merely to substitute market for cost when pricing the new inventory (often
referred to as the cost-of-goods-sold method). Such a procedure increases Cost of Goods Sold by
the amount of the loss and fails to reflect this loss separately. For this reason, many theoretical
objections can be raised against this procedure.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
6. An exception to the normal recognition rule occurs where the inventory consists of (1) agricultural
assets, and (2) commodities held by broker-traders. Some minerals and minerals products may
also be valued at NRV.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
7. (a) Biological assets are measured on initial recognition and at the end of each reporting period at
fair value less costs to sell (NRV). Companies record a gain or loss due to changes in the
NRV of biological assets in income when it arises.
(b) Agricultural produce (which are harvested from biological assets) are measured at fair value
less costs to sell (NRV) at the point of harvest. Once harvested, the NRV of the agricultural
produce becomes its cost and this asset is accounted for similar to other inventories held for
sale in the normal course of business.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
8. Relative standalone sales value is an appropriate basis for pricing inventory when a group of
varying units is purchased at a single lump-sum price (basket purchase). The purchase price must
be allocated in some manner or on some basis among the various units. When the units vary in
size, character, and attractiveness, the basis for allocation must reflect both quantitative and
qualitative aspects. A suitable basis then is the relative standalone sales value of the units that
comprise the inventory.
LO: 1, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
9. The drop in the market price of the commitment should be charged to operations in the current year
if it is material in amount. The following entry would be made [(£6.20 £5.90) X 150,000] = £45,000:
Unrealized Holding Gain or LossIncome (Purchase Commitments) .......
45,000
Purchase Commitment Liability ......................................................
45,000
The entry is made because a loss in utility has occurred during the period in which the market
decline took place. The account credited in the above entry should be included among the current
liabilities on the statement of financial position with an appropriate note indicating the nature and
extent of the commitment. This liability indicates the minimum obligation on the commitment
contract at the present timethe amount that would have to be forfeited in case of breach of
contract.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-7
Questions Chapter 9 (Continued)
10. The major uses of the gross profit method are: (1) it provides an approximation of the ending
inventory which the auditor might use for testing validity of physical inventory count; (2) it means
that a physical count need not be taken every month or quarter; and (3) it helps in determining
damages caused by casualty when inventory cannot be counted.
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
11. Gross profit as a percentage of sales indicates that the margin is based on selling price rather than
cost; for this reason the gross profit as a percentage of selling price will always be lower than if
based on cost. Conversions are as follows:
25% on cost = 20% on selling price
33 1/3% on cost = 25% on selling price
33 1/3% on selling price = 50% on cost
60% on selling price = 150% on cost
LO: 3, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
12. A markup of 25% on cost equals a 20% markup on selling price; therefore, gross profit equals
$1,000,000 ($5 million X 20%) and net income equals $250,000 [$1,000,000 (15% X $5 million)].
The following formula was used to compute the 20% markup on selling price:
Gross profit on selling price =
Percentage markup on cost
=
.25
= 20%
100% + Percentage markup on cost
1 + .25
LO: 3, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
13.
Inventory, January 1, 2019 ....................................................................
$ 400,000
Purchases to February 10, 2019 ............................................................
$1,140,000
Freight-in to February 10, 2019 ..............................................................
60,000
1,200,000
Merchandise available ...................................................................
1,600,000
Sales to February 10, 2019 ....................................................................
1,950,000
Less gross profit at 40% .................................................................
780,000
Sales at cost ..................................................................................
1,170,000
Inventory (approximately) at February 10, 2019 .........................
$ 430,000
LO: 3, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
14. The validity of the retail inventory method is dependent upon (1) the composition of the inventory
remaining approximately the same at the end of the period as it was during the period, and
(2) there being approximately the same rate of markup at the end of the year as was used
throughout the period.
The retail method, though ordinarily applied on a departmental basis, may be appropriate for the
business as a unit if the above conditions are met.
LO: 4, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
15. The conventional retail method is a procedure based on averages whereby inventory figures at
retail are reduced to an inventory valuation figure by multiplying the retail figures by a percentage
which is the complement of the markup percent.
To determine the markup percent, original markups and additional net markups are related to the
original cost. The complement of the markup percent is then applied to the inventory at retail after
the latter has been reduced by net markdowns, thus in effect achieving a lower-of-cost-or-NRV
valuation.
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9-8 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
An example of reduction to net realizable value follows:
Assume purchase of 100 items at $1 each, marked to sell at $1.50 each, at which price 80 were
sold. The remaining 20 are marked down to $1.15 each.
The inventory at $15.33 is $4.67 below original cost and is valued at an amount which will produce
the “normal” 33 1/3% gross profit if sold at the present retail price of $23.00.
Computation of Inventory
Cost
Retail
Ratio
Purchases
$100
$150
66 2/3%
Sales
(120)
Markdowns (20 X $.35)
(7)
Inventory at retail
$ 23
Inventory at lower-of-cost-or-market $23 X 66 2/3% =
$15.33
LO: 4, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
16. (a) Ending inventory:
Cost
Retail
Beginning inventory ............................................................
¥ 149,000
¥ 283,500
Purchases ...........................................................................
1,400,000
2,160,000
Freight-in ............................................................................
70,000
Totals ..........................................................................
1,619,000
2,443,500
Add net markups .................................................................
92,000
¥1,619,000
2,535,500
Deduct net markdowns .......................................................
48,000
2,487,500
Deduct sales .......................................................................
2,175,000
Ending inventory, at retail....................................................
¥ 312,500
Ratio of cost to selling price
¥1,619,000
= 64%.
¥2,535,500
Ending inventory estimated at cost = 64% X ¥312,500 = ¥200,000.
(b) The retail method, above, showed an ending inventory at retail of ¥312,500; therefore, mer-
chandise not accounted for amounts to ¥17,500 (¥312,500 ¥295,000) at retail and ¥11,200
(¥17,500 X .64) at cost.
LO: 4, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
17. The accounting policies adopted in measuring inventories, including the cost formula used
(weighted average, FIFO); the total carrying amount of inventories and the carrying amount in
classifications (common classifications of inventories are merchandise, production supplies, raw
materials, work in progress and finished goods); the carrying amount of inventories carried at fair
value less costs to sell; the amount of inventories recognized as an expense during the period; the
amount of any write-down of inventories recognized as an expense in the period and the amount
of any reversal of any write-down that is recognized as a reduction in the amount of inventories
recognized as expense in the period; the circumstances or events that led to the reversal of a
write-down of inventories; and the carrying amount of inventories pledged as security for liabilities,
if any.
LO: 5, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-9
Questions Chapter 9 (Continued)
18. Inventory turnover measures how quickly inventory is sold. Generally, the higher the inventory
turnover, the better the enterprise is performing. The more times the inventory turns over, the
smaller the net margin can be to earn an appropriate total profit and return on assets. For
example, a company can price its goods lower if it has a high inventory turnover. A company with
a low profit margin, such as 2%, can earn as much as a company with a high net profit margin,
such as 40%, if its inventory turnover is often enough. To illustrate, a grocery store with a 2% profit
margin can earn as much as a jewelry store with a 40% profit margin and an inventory turnover of
1 if its turnover is more than 20 times.
LO: 5, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
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9-10 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 9.1
Item
Cost
NRV
LCNRV
Skis
$190.00
$161.00
$161.00
Boots
106.00
108.00
106.00
Parkas
53.00
50.00
50.00
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.2
(a)
Item
Cost
NRV
LCNRV
Item-by-item
Jokers
2,000
2,100
2,000
Penguins
5,000
4,950
4,950
Riddlers
4,400
4,625
4,400
Scarecrows
3,200
3,830
3,200
Total
14,600
15,505
14,550
(b) 1. Penguins only: 50
2. None on a whole group: 15,505 > 14,600.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.3
(a)
Cost-of-goods-sold-method
Cost of Goods Sold .........................................................
21,000,000
Allowance to Reduce Inventory to NRV ................
21,000,000
(b)
Loss method
Loss Due to Decline of Inventory to NRV ......................
21,000,000
Allowance to Reduce Inventory to NRV ................
21,000,000
LO: 1, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
Showing Page:
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-11
BRIEF EXERCISE 9.4
Biological Assets Shearing Sheep ..............................
4,125*
Unrealized Holding Gain or Loss Income ..........
4,125
*4,700 575 = 4,125.
LO: 2, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.5
Wool Inventory ................................................................
9,000
Unrealized Holding Gain or Loss Income ..........
9,000
Cash .................................................................................
10,500
Cost of Goods Sold .........................................................
9,000
Wool Inventory .......................................................
9,000
Sales Revenue ........................................................
10,500
LO: 2, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.6
Group
Number
of CDs
Sales
Price
per CD
Total
Sales
Price
Relative
Sales
Price
Total
Cost
Cost
Allocated
to CDs
Cost
per CD
1
100
¥ 5
¥ 500
5/100*
X
¥8,000
=
¥ 400
¥ 4**
2
800
¥10
8,000
80/100
X
¥8,000
=
6,400
¥ 8
3
100
¥15
1,500
15/100
X
¥8,000
=
1,200
¥12
¥10,000
¥8,000
*¥500/¥10,000 = 5/100 **¥400/100 = ¥4
LO: 2, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.7
Unrealized Holding LossIncome .................................
50,000
Purchase Commitment Liability ............................
50,000
LO: 2, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC:
Reporting, AICPA PC: Problem Solving
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9-12 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 9.8
Purchases (Inventory) .....................................................
950,000
Purchase Commitment Liability .....................................
50,000
Cash ........................................................................
1,000,000
LO: 2, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.9
Beginning inventory ........................................................
150,000
Purchases ........................................................................
500,000
Cost of goods available ..................................................
650,000
Sales .................................................................................
700,000
Less gross profit (35% X 700,000) ................................
245,000
Estimated cost of goods sold ................................
455,000
Estimated ending inventory destroyed in fire ......
195,000
LO: 3, Bloom: AP, Difficulty: Simple, Time: 5-10, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
BRIEF EXERCISE 9.10
Cost
Retail
Beginning inventory ............................................
$ 12,000
$ 20,000
Net purchases ......................................................
120,000
170,000
Net markups .........................................................
10,000
Totals ....................................................................
$132,000
200,000
Deduct:
Net markdowns ...........................................
7,000
Sales ............................................................
147,000
Ending inventory at retail ..........................
$ 46,000
Cost-to-retail ratio: $132,000 ÷ $200,000 = 66%
Ending inventory at LCNRV (66% X $46,000) = $30,360
LO: 4, Bloom: AP, Difficulty: Simple, Time: 5-10, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-13
BRIEF EXERCISE 9.11
Inventory turnover:
6,486,825,000
= 4.51 times
1,581,297,000 + 1,297,009,000
2
Average days to sell inventory:
365 ÷ 4.51 = 80.9 days
LO: 5, Bloom: AP, Difficulty: Simple, Time: 5-10, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
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9-14 Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only)
SOLUTIONS TO EXERCISES
EXERCISE 9.1 (1520 minutes)
Per Unit
Lower-of-
Part No.
Quantity
Cost
NRV
Total
Cost
Total
NRV
Cost-or-
NRV
110
600
$ 95
$100.00
$ 57,000
$ 60,000
$ 57,000
111
1,000
60
52.00
60,000
52,000
52,000
112
500
80
76.00
40,000
38,000
38,000
113
200
170
180.00
34,000
36,000
34,000
120
400
205
208.00
82,000
83,200
82,000
121
1,600
16
1.00
25,600
1,600
1,600
122
300
240
235.00
72,000
70,500
70,500
Totals
$370,600
$341,300
$335,100
(a) $335,100.
(b) $341,300.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 9.2 (1015 minutes)
Item
Net
Realizable
Value
Cost
LCNRV
D
80*
75
75
E
62
80
62
F
60
80
60
G
35
80
35
H
70
50
50
I
40
36
36
*Estimated selling price Estimated selling costs and cost to
complete = 120 30 10 = 80.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
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Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 9-15
EXERCISE 9.3 (1520 minutes)
Item
No.
Cost
per Unit
Net Realizable
Value
LCNRV
Quantity
Final
Inventory
Value
1320
$3.20
$2.90*
$2.90
1,200
$ 3,480
1333
2.70
2.40
2.40
900
2,160
1426
4.50
3.60
3.60
800
2,880
1437
3.60
1.85
1.85
1,000
1,850
1510
2.25
1.85
1.85
700
1,295
1522
3.00
3.10
3.00
500
1,500
1573
1.80
1.30
1.30
3,000
3,900
1626
4.70
4.50
4.50
1,000
4,500
$21,565
*$4.50 $1.60 = $2.90.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 15-20, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 9.4 (1015 minutes)
December 31, 2019
(a)
Cost of Goods Sold (£346,000 £322,000) ....................
24,000
Allowance to Reduce Inventory to NRV ...............
24,000
December 31, 2020
Allowance to Reduce Inventory to NRV ........................
4,000*
Cost of Goods Sold ................................................
4,000