Question

Companies are allowed to use the gross profit estimation method for the inventory on the balance sheet filed with the SEC

True False

Both markups and markdowns are taken into account for the calculation of goods available for sale at retail prices with the cost method.

True False

Stolen goods cannot be taking into account in the gross profit inventory estimated whereas they can be taken into account in the retail inventory estimation method.

True False

If replacement cost is higher than net realizable value, the designated market value will be replacement cost.

True False

Only companies that make use of FIFO and LIFO at cost are allowed to make use of the lower-of-cost-or-market valuation method.

True False

Answer 1

1) True. Companies are allowed to use gross profit estimation method for the inventory on the balance sheet. It is a technique used to estimate the value of ending inventory.

2) True. Both markup and markdowns are taken into account for the calculation of goods available for sale at retail prices with the cost method.

3) False. Stolen goods are taken into account in gross profit inventory method. It is a technique used to estimate the value of ending inventory taking into account the stolen inventory or inventory loat due to fir or any other means.

4) False. If replacement cost is higher than net realizable value, then the designated market value will be net realizable value. Whichever is lower is to be taken as market value.

5) False. Lower of cost or market rule states that while valuing an inventory of a company, it should be recorded either at its historical cost or market value. No such case of FIFO or LIFO method.