Client Understanding Essay
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- Date Submitted: 01/10/2011 05:38 PM
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Client Understanding Paper
Adjusting Lower Cost of Market Inventory on Valuation
As newly hired staff it is our responsibility to analyze adjusting lower cost of market inventory and explain the valuation. The value of inventory is important because inventory accounts for a large portion of assets, and inventory has a major effect on reported net profit according to Schroeder, Clark, and Cathey (2005). The valuation process for inventory differs from cash, cash equivalents, temporary investments, and receivables. These are reported on the financial statements as what is expected from future cash receipts. Inventory is recorded differently, and as the cost of the acquisition value. Quantity of inventory, cost flow assumption reasonable for the organization, and the decrease of market value acquisition are questions to consider with inventory valuation, according to Schroeder, Clark, and Cathey (2005).
Historically, the idea of conservatism in accounting leads to inaccurate financial reporting. Current Generally Accepted Accounting Principles (GAAP) states the, “Lower of cost or market should not exceed the net realizable value, or not be less than net realizable value reduced by an allowance for an approximately normal profit margin,” according to Schroeder, Clark, and Cathey (2005). This holds true only for downward adjustments, or losses. Inventory is adjusted to lower cost of market value because the utility of inventory diminishes. These diminishes are due to damage, obsolescence, and economic changes. So, utility diminishes and original cost cannot be recovered.
Under the IFRS, IAS No. 2 summarizes the proper principles and measurements of inventory. Inventory is recognized and recorded at the lower of cost and net realizable value. Net realizable value is the approximate selling price less the estimated costs associated with selling the inventory.
Capitalizing...
Adjusting Lower Cost of Market Inventory on Valuation
As newly hired staff it is our responsibility to analyze adjusting lower cost of market inventory and explain the valuation. The value of inventory is important because inventory accounts for a large portion of assets, and inventory has a major effect on reported net profit according to Schroeder, Clark, and Cathey (2005). The valuation process for inventory differs from cash, cash equivalents, temporary investments, and receivables. These are reported on the financial statements as what is expected from future cash receipts. Inventory is recorded differently, and as the cost of the acquisition value. Quantity of inventory, cost flow assumption reasonable for the organization, and the decrease of market value acquisition are questions to consider with inventory valuation, according to Schroeder, Clark, and Cathey (2005).
Historically, the idea of conservatism in accounting leads to inaccurate financial reporting. Current Generally Accepted Accounting Principles (GAAP) states the, “Lower of cost or market should not exceed the net realizable value, or not be less than net realizable value reduced by an allowance for an approximately normal profit margin,” according to Schroeder, Clark, and Cathey (2005). This holds true only for downward adjustments, or losses. Inventory is adjusted to lower cost of market value because the utility of inventory diminishes. These diminishes are due to damage, obsolescence, and economic changes. So, utility diminishes and original cost cannot be recovered.
Under the IFRS, IAS No. 2 summarizes the proper principles and measurements of inventory. Inventory is recognized and recorded at the lower of cost and net realizable value. Net realizable value is the approximate selling price less the estimated costs associated with selling the inventory.
Capitalizing...