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Inventories: Additional Issues


We covered most of the principal measurement and reporting issues involving the asset inventory and the corresponding expense cost of goods sold in the previous chapter. In this chapter we complete our discussion of inventory measurement by explaining the lower-of-cost-or-market rule used to value inventories. In addition, we investigate inventory estimation techniques, methods of simplifying LIFO, changes in inventory method, and inventory errors.



Understand and apply the lower-of-cost-or-market rule used to value inventories.

Estimate ending inventory and cost of goods sold using the gross profit method.

Estimate ending inventory and cost of goods sold using the retail inventory method, applying the various cost flow methods.

Explain how the retail inventory method can be made to approximate the lower-of-cost-or-market rule.

Determine ending inventory using the dollar-value LIFO retail inventory method.

Explain the appropriate accounting treatment required when a change in inventory method is made.

Explain the appropriate accounting treatment required when an inventory error is discovered.





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