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Inventory : Additional Valuation Issues - Coggle Diagram
Inventory : Additional Valuation Issues
Lower-of-Cost-or-Net Realizable Value (L C N R V)
future utility (revenue-producing ability) of the asset drops below its original cost
Estimated selling price in the normal course of business less
estimated costs to complete
LCNRV disclosures
LCNRV disclosures are the financial statement disclosures that provide information about the inventory valuation method used by a company and the effect of any inventory write-downs on the income statement
LCNRV disclosures help users of financial statements to assess the liquidity, profitability, and solvency of a company.
Determining Final Inventory Value
Defenition
Determining final inventory value is an important task for any business that sells physical goods
different methods to calculate the final inventory value
FIFO (first in, first out), LIFO (last in, first out), and weighted-average cost.
Recovery of inventory loss
Defenition
the process of restoring the value of inventory that has been reduced due to damage, theft, obsolescence, or other causes
different methods and accounting treatments
There are different methods and accounting treatments for recovering inventory loss, depending on the nature and extent of the loss, and the type of inventory system used by the business
The gross profit method
The gross profit method of estimating inventory is a way of calculating the ending inventory of a business without doing a physical count
The gross profit percentage
The gross profit percentage is the ratio of gross profit (sales minus cost of goods sold) to sales.
The retail inventory method
The retail inventory method is a way of estimating the value of a store’s inventory without doing a physical count
Retail Inventory Method Concepts
Markup
Markup cancellations
Markdowns
arkdown cancellations
Net Markups and Net Markdowns
A net markdown
net markdown is the amount by which a product’s selling price is decreased from its original or cost price
Net markups and net markdowns are terms used in retail accounting to describe the changes in the selling prices of goods