Page 29 - CFA Lecture Day 9 Slides

Session Unit 8:

28. Inventories (A/A/C/C)

tanties

B. Market is equal to the replacement cost as long as replacement cost is within a specific range. The upper bound is net realizable
value (NRV) which is equal to the selling price ($50) less selling costs ($3) for a NRV of $47. The lower bound is NRV ($47) less normal
profit margin (10% of selling price = $5) for a net amount of $42. Because replacement cost is greater than NRV ($47), market equals
NRV ($47). Additionally, we have to use the lower of cost ($43) or market ($47) principle, so the shoes should be recorded at a cost of
$43.

C. FIFO COGS = LIFO COGS – (ending LIFO reserve – beginning LIFO reserve) Ending LIFO reserve – beginning LIFO
reserve = $35,000 – $ 40,000 = –$5,000 With FIFO COGS $5,000 greater than LIFO COGS, gross profit under FIFO would