BYP 6-7 ETHICS CASE
(a) The higher cost of the items ordered, received, and on hand at year–
end will be charged to cost of goods sold, thereby lowering current
(b) No. The president would not have given the same directive because the
current year.
(c) The accountant has no grounds for not ordering the goods if the
president insists. The purchase is legal and ethical.
BYP 6-8 ALL ABOUT YOU
Students responses to this question will vary depending on the inventory
fraud they choose to investigate. Here are responses for the two examples
given in the activity.
McKesson Corporation increased its reported net income through manipulation
of inventory and sales records. It back-dated many transactions to increase
BYP 6-9 FASB CODIFICATION ACTIVITY
and its determination involves many considerations. (330-10–30-1).
(b) The basis of stating inventories shall be consistently applied and
shall be disclosed in the financial statements; whenever a significant
change is made therein, there shall be disclosure of the nature of the
(c) A departure from the cost basis of pricing the inventory is required
when the utility of the goods is no longer as great as their cost. Where
IFRS EXERCISES
IFRS6-1
value; (5) certain agricultural products and minerals and mineral products
can be reported at net realizable value using IFRS.
Key differences are related to (1) the LIFO cost flow assumption—U.S.
GAAP permits the use of LIFO for inventory valuation, but IFRS prohibits
cost. As a result, the inventory may not be written back up to its original
cost in a subsequent period. Under IFRS, the write-down may be reversed
IFRS6-2
Under IFRS, LaTour’s inventory turnover is computed as follows:
Difficulties in comparison to a company using U.S. GAAP could arise if the
U.S. company uses the LIFO cost flow assumption, which is prohibited under
IFRS6-3
Item No.
Cost
Net Realizable Value
LCNRV
AB
$ 1,700
$ 1,400
$ 1,400
TRX
2,200
2,300
2,200
NWA
7,800
7,100
7,100
SGH
3,000
3,700
3,000
$14,700
$14,500
$13,700
IFRS6-4 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Inventories are stated at the lower–of-cost-or-net realizable value, using
first-in-first out cost flow assumption.