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 of inventory
- Carrying value of inventories reported at fair value – selling costs
- COGS during period
- Amount of inventory writedown
- Reversals of inventory write-downs
- Carrying value of inventories
Inventory changes: change inventory flow methods
- Prior years’ financial statements are recast based on new cost flow method
- Accumulated effect is reported as an adjustment to beginning retained earnings of the earliest year
- Under
- IFRS: the change will provide reliable and more relevant information
- U.S. GAAP: explain why the change in cost flow method is preferable
Notes:
- Fair value:
- In accounting and in most Schools of economic thought, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset.
- Inventory flow methods
- specific cost; average cost;
- first‐in, first‐out (FIFO);
- last‐in, first‐out (LIFO).
Reported inventory:
- Merchandising: using one account on BS
- Manufacturing firms: raw materials, work-in-process, finished goods
Other source of info to analyse to evaluate future revenues and earnings
- Management’s discussion and analysis
- Economic data in the industry
- Industry trade publication
Note:
- Inventory taxes:
- considers the inventory unsold at the end of the financial year, when calculating the tax to pay