[I'm, Ron Burgundy?]

Please take a look at the question below from WTB. My question is going to follow…

Q:

Megan Corporation values its inventory at the lower of cost or net realizable value as required by IFRS. Megan has the following information regarding its inventory.

Historical cost $10,000

Estimated selling price 9,000

Estimated costs to complete and sell 500

Replacement cost 8,000

What is the amount for inventory that Megan should report on the balance sheet under the lower of cost or net realizable value method?

$10,000

$9,000

$8,500

$7,500

The correct answer is $8.500

My Question:

While realizing that IFRS uses no “Ceiling” or “Floor” in comparison to GAAP method, I am confused on the cost that they are using to reach this answer. It seems to me that IFRS uses Historical Cost instead of the Current Replacement Cost, if not, the “lower” would be the replacement cost of $8,000. However, this wasn’t an answer option so I opted for the $8,500 as it was the next closest answer that made sense.

For future reference: Should I approach the IFRS method only using the Historical Cost and Ignoring the Replacement Cost? Or does the replacement cost eventually come into play and I’m missing something?

"If you're going through hell, keep going"
- Winston Churchill

"I've missed over 9,000 shots in my career. I've lost over 300 games. 26 times I've been trusted to take the game winning shot, and missed. I've failed, over and over and over again in my life. And that is why, I succeed."
- Michael Jordan

BEC: (54), (72), 80 (losing credit on 02/02/15 - nervous)
AUD: 78
REG: (74), 91
FAR: (71)

[CPA soon]

I don't remember IFRS using historical cost for inventory, from what I know both use lower of cost or market.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Anonymous]

haha I recognized this right away from the Wiley TB.

IFRS is pretty straight up. Historical cost vs NRV, lower of the 2 so $8,500 makes sense

[rana_cali]

To answer your question, always use historical cost

AUD: 84
FAR: 75
BEC: 78
REG: 75

DONE-ZO!!!!!!!!

REG: Used Becker 2014 book, NINJA MCQ, Ninja notes, ninja audio
_______________________________
CFE since Oct. 2013.

[23K]

as Dave stated earlier take the lower of the two (cost vs NRV)

AUD--52,68,83, expired. Retake = 74 RETAKE - 7.24.26
FAR--73,70,68,75
BEC-- 79
REG-- 68,62,75

[I'm, Ron Burgundy?]

@rana – when you say “always”, I'm assuming that you mean for IFRS?

Thank you everyone else for your feedback.

"If you're going through hell, keep going"
- Winston Churchill

"I've missed over 9,000 shots in my career. I've lost over 300 games. 26 times I've been trusted to take the game winning shot, and missed. I've failed, over and over and over again in my life. And that is why, I succeed."
- Michael Jordan

BEC: (54), (72), 80 (losing credit on 02/02/15 - nervous)
AUD: 78
REG: (74), 91
FAR: (71)

[samdiegoCPA]

IFRS does NOT use replacement cost ever, so it's historical vs NRV.

GAAP does use replacement cost and the “ceiling/floor” thing. So the middle of replacement, NRV, and NRV – profit margin.

AUD: 84
REG: 84
BEC: 79
FAR: 83

[rana_cali]

@Im Ron Bergundy, Exactly…for IFRS only

AUD: 84
FAR: 75
BEC: 78
REG: 75

DONE-ZO!!!!!!!!

REG: Used Becker 2014 book, NINJA MCQ, Ninja notes, ninja audio
_______________________________
CFE since Oct. 2013.

[Author]

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