The morning part of the CFA Level 1 mock there is a questions that asks:
The following information is available for a manufacturing company:
$ Millions
Cost of ending inventory computed using FIFO
4.3
Net realizable value
4.1
Current replacement cost
3.8
If the company is using International Financial Reporting Standards (IFRS) instead of US GAAP, its cost of goods sold (in millions) is most likely:
A. .3 Lower
B. The Same
C. .3 higher
I don’t understand why its .3 lower, under GAAP you use replacement cost of 3.8 vs 4.1 NRV under IFRS; therfore it should be .3 higher under IFRS as compared to GAAP
IFRS means lower depreciation of inventory, which in turn means the costs charged to the COGS will be lower. Consequence is that COGS under IFRS will be lower (net income higher) compared to US GAAP.