Inventory and Fixed Assest Essay example
Undergraduate
Essay
Finance & Accounting
Pages 4 (1004 words)
Download 0
There are different accounting rules that affect the treatment of economic transactions. These special rules must be part of the knowledge base of a professional accountant. This paper discusses four special accounting rules for specific events. The four accounting concepts discussed in this paper are lower cost or market, capitalization of interest in construction projects, recording gain or loss on asset disposal, and adjusting goodwill for impairment…

Introduction

Inventory is categorized as a current asset in the balance sheet. Most manufacturing companies have large amounts of inventory. That inventory can go down in value for various reasons including technological advances. “Accounting Research Bulletin No. 43 (ARB No. 43) leads to an accounting valuation method known as the lower of cost or market, or LCM” (Accountingcoach, 2011). Based on ARB No. 43 the word market refers to the current replacement cost of the item. A concept related to the calculation of lower of cost or market is net realizable value (NRV). The net realizable value is defined as the expected price minus the cost for completion and disposal. Another variable that must be considered in LCM calculations are the lower ceiling and upper ceiling. The upper ceiling is the same amount as the NRV, while the lower ceiling is calculated by subtracting normal profit from NRV. The accounting for lower cost or market requires specific journal entries to record LCM. The two ledger accounts used by accountants are: Allowance to Reduce Inventory to LCM Loss from Reducing Inventory to LCM Take for example a company that had an inventory with a cost of $70,000 and market value of $68,000. ...
Download paper
Not exactly what you need?

Related papers

A Report on Reasons why Governments Prefer Financial Systems featuring Fixed
On the other hand, a floating rate of exchange is the one that is moving and received currency depends on exchange time.To maintain their local exchange rate, central banks of European Union members bought and sold their own currency in foreign exchange markets, and in return, they acquired their pegged currency. For example, if the value of a single local unit currency is US$4, the central bank…
Fixed Exchange Rate and Floating Exchange Rate Systems
Under the system of Bretton Woods, the various countries’ major currencies were used to be fixed in relation to the Dollar while the Dollar was fixed with respect to the value of gold. This system indicated that the threat of currency instability was to be abided by the governments. As a result of this system, the corporation houses were to deal with lesser trading activities related with…
Biggest threats to the Assets and Inventory of Companies
It is imperative for companies to have accounting control mechanisms in place to prevent employee theft. A good mechanism that can be used to prevent theft is the fraud tree. The fraud tree can be described as asset misappropriation schemes that are used by employees to target the assets of a company. The two major asset types included in the fraud tree are cash and inventory. Nearly 90% of the…
Fixed Tangible.
nce sheet of the company. The cost include cost incurred at the time of purchase of asset such as cash payment for the acquisition of assets, duty paid on the import of assets at the time of import, transportation cost incurred for bringing the asset to the desired location and place. Although, there might be cost incurred related to the acquisition of the assets but it might not be relevant and…
Understanding of the Different Kinds of Cost: Variable, Fixed, and Mixed
Understanding of the Different Kinds of Cost: Variable, Fixed, and Mixed …
Use of Supply Chain Management as a Method of Inventory Control
Use of Supply Chain Management as a Method of Inventory Control …
Equities and Fixed Income Investments
While the analysis of the free cash flow will indicate if the company enjoys an unobstructed flow of cash. The analysis of the free cash flow to equity will indicate if the company is in a position to service the equity holders after clearing all the expenses, reinvestment and repayment of debt. The analysis of the EBITDA indicates the cash flow from the operations (Hatten and Ruhland, 2005). The…