BYP 6-7 COMMUNICATION ACTIVITY
In a period of changing prices, the cost flow assumption can have a signifi-
cant impact on income and on evaluations based on income. Under the
FIFO method, the costs of the earliest goods purchased are the first to be
recognized as cost of goods sold. Under the average-cost method, the
*BYP 6-8 COMMUNICATION ACTIVITY
MEMO
To: K. L. Howard, President
From: Student
Subject: 2013 ending inventory error
BYP 6-9 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
BYP 6-10 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.
BYP 6-11 FASB CODIFICATION ACTIVITY
(a) The primary basis of accounting for inventories is cost, which has
been defined generally as the price paid or consideration given to
acquire an asset. As applied to inventories, cost means in principle the
sum of the applicable expenditures and charges directly or indirectly
incurred in bringing an article to its existing condition and location. It
BYP6-12 CONSIDERING PEOPLE, PLANT, AND PROFIT
(a) By the end of 2011, Caterpillar had turbines up and running that
eliminate the equivalent of 540,000 metric tons of CO2 emissions per
year. The application is sustainable in several ways. First, pollutants
are reduced in the combustion process. Second, electricity is
(b) The company’s goals were separated into two groups as follows:
2020 Goals for Operations
● Reduce recordable workplace Injury rate to 0.6 and lost-time case
rate due to Injury to 0.15
● Increase energy efficiency by 25%
2020 Goals for Product, Services and Solutions
● Provide leadership in the safety of people in, on and around our
products.
BYP 6-12 (Continued)
(c) The company improved its Recordable Injury Frequency rate by 83
percent from our 2003 baseline year and 13 percent from its last
reporting period. It improved its Lost-Time Case Frequency rate by 91
IFRS CONCEPTS AND APPLICATION
IFRS6-1
Key Similarities are (1) the definitions for inventory are essentially the same,
(2) the guidelines on who owns the goods—goods in transit, consigned
goods, and the costs to include in inventory are essentially accounted for
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
its use. FIFO and average-cost are the only two acceptable cost flow
assumptions permitted under IFRS; (2) lower-of-cost-or-market test for
IFRS6-2
Under IFRS, LaTour’s inventory turnover is computed as follows:
Cost of Goods Sold/Average Inventory
IFRS6-3
Item No. Cost Net Realizable Value LCNRV
AB $ 1,700 $ 1,400 $ 1,400
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.
