[TBone]

Unless I missed something I thought inventory was valued at LCM for GAAP and Lower of Cost or NRV for IFRS. Assuming that’s the case, why is the following question and answer correct??

Based on a physical inventory taken on December 31, 20X1, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy’s normal profit margin is 10% of sales. Under the lower of cost or market rule, what amount should Chewy report as chocolate inventory on its December 31, 20X1, balance sheet?

A. $28,000
B. $26,000
C. $24,000
D. $20,000

I guessed C because the floor is $24,000 which is between NRV ($28k) and Replacement ($20k) and also lower than Cost ($26k)

Ninja MCQ says the answer is B $26,000 using lower of Cost or NRV but IFRS isn’t mentioned in the question at all.

Explanation: Inventory measured using any method other than LIFO or the retail inventory method (e.g., FIFO or average cost) is measured at the lower of cost and net realizable value (NRV), which is defined to be the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. If the NRV of inventory is lower than its cost, the difference is recognized as a loss in earnings in the period in which it occurs.

Chewy should report chocolate inventory on December 31, 20X1 at cost of $26,000, which is lower than the NRV of $28,000 (selling price of $40,000 less processing costs of $12,000).

Am I missing something?

FAR: 66, 75
AUD: 67, 69, 70, 74, 74
REG: 71, 79
BEC: 73

[mtaylo24]

I think LCM is for LIFO/Retail. IFRS, GAAP FIFO and everything else uses LCNRV

Edit: “because f*uck me, right?” – Haha that's the story of my journey too!

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[Anonymous]

mtaylo24 is right. This tripped me up too.

The rules changed recently:

2017 CPA Exam Update Summary

skip to 2:05

[TBone]

Thank you both!

FAR: 66, 75
AUD: 67, 69, 70, 74, 74
REG: 71, 79
BEC: 73

[Author]

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