We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Inventory Accounting Essay

Essay Topic:

Sorry, but copying text is forbidden on this website!

1.      Inventory costs:

The use of LIFO for determining inventory costs under International Accounting Standards is prohibited, while it is permitted under US GAAP.

2.      Reversal of inventory write downs:

Under IAS, it is required if certain criteria are met whereas US GAAP strictly prohibits it.

3.      Basis of Inventory valuation:

Under IAS, the inventory is carried at the lower of cost or net realizable value (NRV).

Under US GAAP, Carried at the lower of cost and market (market is the lower of replacement cost and NRV minus normal profit margin).

We will write a custom essay on Inventory Accounting specifically for you
for only $16.38 $13.90/page

Order now

4.      Whether the costs of idle capacity and spoilage can be included in inventory

Under IAS, it is prohibited.

Under US GAAP, it is permitted.

The change to IAS will avoid the biggest disadvantage of US GAAP that is; it permits LIFO to be used for inventory valuation where the oldest inventory costs are assigned to the inventory account which, when prices are changing can result in an inventory value that does not reflect the true current value.

Also, in case of shift to IAS, US companies will not be able to show lower profits by using LIFO when prices are rising. US GAAP helped the companies to reduce their payment of taxes.

Under US GAAP, extraordinary items are permitted but restricted to infrequent, unusual and rare items that affect profit and loss. However, it is prohibited under IAS.

Thus, extraordinary items give companies somewhat of a “hall pass” with the markets, allowing them to sometimes report lower earnings but get credit for higher earnings. Obviously, it is tempting for companies to try to report every bad thing that happens as an extraordinary item. This can be avoided once IAS is in place.

IAS is more comprehensive and clear. It would avoid misinterpretation by the companies.

How to cite this page

Choose cite format:

Inventory Accounting. (2016, Oct 10). Retrieved from https://studymoose.com/inventory-accounting-essay

We will write a custom sample essay onInventory Accountingspecifically for you

for only $16.38 $13.90/page
Order now

Our customer support team is available Monday-Friday 9am-5pm EST. If you contact us after hours, we'll get back to you in 24 hours or less.

By clicking "Send Message", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
No results found for “ image
Try Our service
online

Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b

online

Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b

image

Your Answer is very helpful for Us
Thank you a lot!