Question

Applying IFRS LVMH is a Paris-based manufacturer of luxury goods that prepares its financial statements using IFRS. During the year, the management of the company undertook a review of the fair value of its inventory and found that the inventory had appreciated above its book value of 19 million euros. According to the company's management, the inventory was undervalued by 9 million euros. Prepare the journal entry to revalue the company's inventory. How would the revaluation immediately affect the company's (a) current ratio, (b) inventory turnover, and (c) days' sales in inventory?

Enter answers in million euros.

General Journal
Description	Debit	Credit
Inventory or Asset Revaluation Reserve?
Inventory or Asset Revaluation Reserve?

To record re-evaluation of inventory.

a. Current ratio Increase or Decrease?

b. Inventory turnover Increase or Decrease?

c. Days' sales in inventory Increase or Decrease?

Answer 1

Solution:

According to IFRS:

Any misfortunes identified with the stock and record of stock to its NRV will be recorded as cost in the important period in which misfortune or record emerges.

The inversion of record identified with stock will be recorded as decrease in cost in the period in which inversion of record emerges.

Diary Entry for revaluing Company's Inventory:

Charge Inventory $ 9000,000

Credit Cost of good Sold $9000,000.

The present proportion = Current Assets/Current Liabilities.

The Current proportion will increment since the end Inventory will be expanded by 9 Million.

Stock Turnover will be decline since, Inventory Turnover = Cost of products sold/Average Inventory.

Expenses of merchandise sold is diminished by 9 million though the end stock is expanded by 9 million, on doing average with opening, the expansion in stock is not as much as lessening in expenses of products sold, hence the proportion will be lower.

No of days stock = 365/Inventory Turnover

Since the stock turnover proportion will diminish, days' deals in stock will increment.