Question

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1. Inventory Write-Down

   The following information for Tuell Company is available:

   	Case
   	1	2	3	4	5
   Cost	$5.00	$5.00	$5.00	$5.00	$5.00
   Net realizable value	5.10	5.50	4.80	4.20	4.75
   Net realizable value less normal profit	4.80	5.40	4.70	4.00	4.60
   Replacement cost	5.30	5.30	4.60	4.15	4.90

   Required:

   1.	Assume Tuell uses the LIFO cost flow assumption. What is the correct inventory value in each of the preceding situations under U.S. GAAP? If required, round your answers to the nearest cent.

   Case		Inventory value
   1		$
   2		$
   3		$
   4		$
   5		$

   2.	Assume Tuell uses the average cost inventory cost flow assumption. What is the correct inventory value in each of the preceding situations under U.S. GAAP? If required, round your answers to the nearest cent.

   Case		Inventory value
   1		$
   2		$
   3		$
   4		$
   5		$

   3.	Assume that Tuell uses the average cost inventory cost flow assumption. What is the correct inventory value in each of the preceding situations if Tuell uses IFRS? If required, round your answers to the nearest cent.

   Case		Inventory value
   1		$
   2		$
   3		$
   4		$
   5		$

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Answer 1

ANSWER

As per the given question,

A B C D Е G Tuell Company 2 Requirement "1" Inventory valuation under U.S.GAAP 4 Determination of Value per unit under Lower of cost or market method 5 6 Net Realisable Market Historical Replacement Net Realisable Value less normal Value Value unit Case per Cost Value cost profit (Note-1) 7 1 5.00 5.30 5.10 4.80 5.10 5.00 5.30 5.30 2 5.00 5.20 5.50 5.00 10 5.00 4.80 4.60 4.70 4,70 4.70 4.20 4.00 11 5.00 4.10 4.10 4.10 4.60 12 5 5.00 4.80 4.70 4.70 4.70 13 14 15 Note-1 Market value will be the replacement cost. However market value cannot exceed the net 16 realizable value and also cannot be lower than Net realizable value less normal operating profit. 17 18 Calculations are shown as below 19 Net Realisable Market Historical Replacement Net Realisable Value less normal Value Value per unit Case Value Cost cost profit (Note-1) 20 IF(B24<F24,B24,F24) IF(B25<F25,B25,F25) 21 5 5.3 5.1 4.8 -D24 22 5.2 5.5 2 5 5.3 =E25 4.6 23 4.8 =IF(B26<F26,B26,F26) 3 5 4.7 -E26 24 =IF(B27<F27,B27,F27) 5 4.1 4.2 -C27 25 4.7 =IF(B28<F28,B28, F28) 5 5 4.8 4.6 -D28 26 L unun n

A. В C Е G 28 Requirement "2" Inventory valuation under U.S.GAAP 29 30 Determination of Value per unit under Lower of cost or market method 31 32 Net Realisable Market Historical Replacement Net Realisable Value less normal Value Value per unit Case Cost Value cost profit (Note-1) 33 34 1 5.00 5.30 5.10 4.80 5.10 5.00 35 2 5.00 5.20 5.50 5.30 5.30 5.00 36 5.00 4.60 3 4.80 4.70 4.70 4.70 5.00 4.10 37 4.10 4.20 4.00 4.10 4.70 38 5.00 4.80 4.60 4,70 4.70 39 40 41 Note-1 Market value will be the replacement cost. However market value cannot exceed the net 42 realizable value and also cannot be lower than Net realizable value less normal operating profit 43 44 Calculations are shown as below: 45 Net Realisable Market Historical Replacement Net Realisable Value less normal Value per unit Value Case Value Cost cost (Note-1) profit 46 IF(B48<F48,B48,F48) 47 1 5 5.3 5.1 4.8 =D48 -E49 =IF(B49<F49,B49,F49) 48 5 5.2 5.5 5.3 =IF(B50<F50,B50, F50) 49 5 4.6 4.8 4.7 -E50 =C51 =IF(B51<F51,B51,F51) 50 5 4.1 4.2 =IF(B52<F52,B52,F52) 51 5 5 4.8 4.7 4.6 =D52 52

A C D E Requirement "3" Inventory valuation under IFRS 54 55 56 Historical Net Realisable Value per unit Case Value Cost 57 58 1 5 5.1 5 59 2 5 5.5 5 60 5 4.8 4.8 61 5 4.2 4.2 62 5 5 4.7 4.7 63 64 Note: Under IFRS, Inventory is valued at Lower of Cost or Net Realisable 65 Value 66 67 Calculations are shown as below: 68 Historical Net Realisable Value per unit Case Value Cost 69 5.1 =IF(C71<B71,C71,B71) =IF(C72<B72,C72,872) EIF(C73<B73,С73, В73) =IF(C74<B74,C74,B74) IF(C75<B75,C75, B 75) 70 1 5 71 2 5 5.5 72 3 5 4.8 73 5 4.2 74 5 5 4.7 co. n

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