Low attendance today. Today is apparently the drop-dead date, so that may be the explanation. If so, a lot of people decided they didn’t like their odds. Class is a ghost town.We’re finishing up inventory today.
Valuing Inventory at the Lower of Cost or Market. The Lower of Cost or Market Rule states that when the replacement cost of inventory falls below the historical cost, the inventory is written down at the lower value, and a loss is recorded.
This can be done item-by-item, or by comparing entire categories at a time.
Essentially, if it would cost less to replace the items today than it did to purchase them originally, you lower their cost to reflect the replacement cost.
The Retail Method of Inventory Estimation is a method for estimating the cosr of inventory by using the ratio of the cost to the retail price.
Estimated Ending Inventory at Retail = (Beginning Inventory + Purchases) at Retail – Sales During Period
The term at retail means the amount of inventory at the marked selling price.
The Gross Profit Method of Inventory Estimation is a way of estimating the cost of inventory on the assumption that the ratio of gross margin for a business remains relatively stable from year to year.
Estimated Ending Inventory at cost = Cost of Goods Available for Sale – (Sales – Estimated Gross Margin)
This method is used in place of the retail method when proper records don’t exist. It is acceptable for interim report statements, but is not acceptable for end of year statements.
Chapter 9: Long-Lived Assets
Long-lived assets include fixed assets, plant assets, intangible assets, and a few other things that won’t be covered.
Expenditures are necessary to create or maintain long-lived assets. There are two kinds of expenditures for long-lived assets.
- Capital expenditures — Expenditures to increase the value of the asset or make it ready for its intended use
- Revenue expenditures
The cost of the asset equals the fair market value of the expenditures.