Question

QUESTION 1. Access the glossary (“Master Glossary”) to answer the following: According to the definition for inventory, what are the three characteristics of tangible personal property that qualify items to be classified as inventory? What is specifically excluded from being defined as inventory?

QUESTION 2. According to ASC 470-40-05-02, what is a sale with a repurchase agreement considered? What term is often used to describe these type of transactions? (hint: it’s in the textbook in Chapter 8 and I discussed this in class) FOR

QUESTIONS 3-5, provide Codification references in format of ASC XXX-YY-ZZ-** where XXX represents the Topic number, YY the Subtopic number, ZZ the Section number, ** the paragraph number QUESTION 3. According to the Codification, what is given as an example of an exceptional case when it is acceptable to state inventory, after initial measurement, above cost?

QUESTION 4. Where in the Codification does it state that the SEC requires the disclosure, either in the balance sheet or in the notes, of the amounts of major classes of inventory such as finished goods, inventoried costs relating to long-term contracts or programs, work in process, raw materials, etc.?

QUESTION 5. Your audit client, Footlocker, wants to revalue its inventory of Kobe Bryant jerseys to reflect their new, higher sales price. Is this permissible under U.S. GAAP? Quote the relevant language from the Codification in explaining your answer and include the relevant Codification references in XXX-YY-ZZ-** forma

Answer 1

Ans 1. The three characteristics of Tangible personal Property that qualifies it as Inventory are as discussed below:-

It is waiting sale

It is in the process of production

Goods to be consumed directly in production

Ans 2 :- The sale with Repurchasing agreement is termed as Collaterised financing.

Ans 3-5 The codification will be ASC 181 - 36- 24 - 33 indicating 181 for topic number, 36 refering to sub topic number 24 refering to section number & 33 refering to paragraph number.

Ans 3 According to codification , When units have an immediate marketability at quoted prices it is relevant to state above cost post initial measurement.

Ans 4 - Skipped.

Ans 5 - As per US GAAP , it is allowed to revalue inventory at Replacement cost if there is a difference in the market value and replacement value. But in the question we are not aware of the replacement value. Hence the inventory has to valued at lower of cost or market value. Hence Footlocker is prohibitied from revaluing its inventory to adjust its Kobe bryants Jersey at its higher sales price.