Disclosures relating to inventories

Inventory disclosures:  Found in financial statement footnotes Making adjustments to facilitate comparisons with other firms Includes:  Cost flow method used (LIFO, FIFO…) Total carrying value

Measurement of inventory

Under IFRS, Inventory is reported on BS at  Lower of cost or Net realizable value Net realizable value (NRV) (13) Expected sales price – estimated

LIFO liquidation

LIFO Liquidation (13) Sells (or issues) the old stock of merchandise (or raw materials) inventory. It occurs when a company using LIFO method sells (or

LIFO reserve

Adjust the financial statements of LIFO firms to compare with FIFO firms:  LIFO inventory < FIFO inventory  LIFO COGS > FIFO COGS  LIFO net income

Cost recognized as expenses

Period cost  Costs that are expensed in the period incurred Including  Abnormal waste of materials, labor, overhead  Storage costs Administrative overhead Selling costs Notes Rebate

Cost included in Inventories

Product cost (1) Capitalized in inventories account on balance sheet Purchase cost – trade discounts and rebates  Conversion costs: labor + overhead Other costs necessary


Different inventory cost flow methods FIFO LIFO Weighted average cost Under each method, to calculate COGS Ending inventory Gross profit Effect of each method on