supersharpshooter Wrote: ------------------------------------------------------- > basically they got rid of their entire inventory, > and you had to change cogs to the written up > inventory value? did they get rid of part of it > and you had to jack up COGS by the pro-rata share > of the inventory fair value write-up? i completely > missed this part of the question. if your inventory was written up by 1,400 you would eventually have to recognize the additional COGS on your income statement. If Inventory is written up to fair value, COGS is written up which decreases net income. if Fixed assets are written up, you would also have additional depreciation
Ok, so what does that do to this question - do you write up the COGS immediately while calculating Gross Margin? I was sure about it before but not so much at this point.
If they sold the inventory you have to mark it up. If not, you don’t. I made no adjustment but I believe I got it wrong becuause I recall the problem saying that they sold it.
wake2000 Wrote: ------------------------------------------------------- > jainan33 Wrote: > -------------------------------------------------- > ----- > > guys it is ifrs, everything is already FIFI and > no > > adjustment needed, plus when merger done, fair > > value already used > > > this is a beautiful thing if that’s the case, i > totally forgot about this i think this is what i did. in other words, did you guys take the 100% values of sales and values of cogs and sum them, then net them and divide to get the margin?
Yup thats what I did anyway.
Are you all sure thats right? (The reason I’m asking is cuz I did it too)
is anyone sure of anything anymore?
SkipE99 Wrote: ------------------------------------------------------- > is anyone sure of anything anymore? nope. but i do no if they did say the inventory was sold during the year then you definitely had to adjust for the mark up of inventory. if they did not mention inventory was sold, no adjustment. I made the adjustment and thought I remembered something about being sold but I like Skip said, i am not sure of anything.
please remind me…maybe I am too messed up by the exam. Are you saying that inventory all the inventory were sold? and that was in the question? If all were sold why do we need to adjust?..since it would not be a case where a part was left in inventory which would be reflecting the current cost. I understand it would not be a LIFO/FIFO issue, as this adj. is being made from an analyst point of view (under FIFO inventory reflects current cost but COGS does not) to ensure that both the COGS under FIFO reflects the current cost. However, if everthing is sold why do we need to adjust?
MrGrey Wrote: ------------------------------------------------------- > SkipE99 Wrote: > -------------------------------------------------- > ----- > > is anyone sure of anything anymore? > > nope. but i do no if they did say the inventory > was sold during the year then you definitely had > to adjust for the mark up of inventory. if they > did not mention inventory was sold, no adjustment. > I made the adjustment and thought I remembered > something about being sold but I like Skip said, i > am not sure of anything. I don’t remember anything about inventory being sold or not during the year, but wasn’t the question about gross margin of the combined entity right after the merger? If that’s the case, the sale of inventory during the year would be pretty irrelevant I suppose.
Thats my point. I cant rememebr anything about inventorr being sold. The only reference to inventory was that they both use FIFO.
i am not saying any of you guys are wrong - i think i am wrong because the inventory definitely was marked up and should be reflected in the cogs. but why can’t anyone tell me how you determined how much of the mark-up should flow through to that year’s cogs? did they get rid of their entire inventory, and you had to change cogs to the written up inventory value? did they get rid of part of it and you had to jack up COGS by the pro-rata share of the inventory fair value write-up? i completely neglected this aspect of the problem.
supersharpshooter Wrote: ------------------------------------------------------- > i am not saying any of you guys are wrong - i > think i am wrong because the inventory definitely > was marked up and should be reflected in the cogs. > but why can’t anyone tell me how you determined > how much of the mark-up should flow through to > that year’s cogs? > > > did they get rid of their entire inventory, and > you had to change cogs to the written up inventory > value? did they get rid of part of it and you had > to jack up COGS by the pro-rata share of the > inventory fair value write-up? i completely > neglected this aspect of the problem. if inventory is written up to fair value at acquisition date, the book says you have to reflect the COGS by the amount that was written up, if the inventory was sold during the year. most of the CFAI practice questions and examples were done this way. there is one example in the text where you can see it but I dont have my book in front of me to reference. the trigger is if the inventory was sold during the year. If it was, then 100% the COGS had to relfect the write up as well. its very similair to the write up in fixed assets to fair value. If fixed assets are written up you take the additional depreciation hit.
MrGrey Wrote: ------------------------------------------------------- > supersharpshooter Wrote: > -------------------------------------------------- > ----- > > i am not saying any of you guys are wrong - i > > think i am wrong because the inventory > definitely > > was marked up and should be reflected in the > cogs. > > but why can’t anyone tell me how you > determined > > how much of the mark-up should flow through to > > that year’s cogs? > > > > > > did they get rid of their entire inventory, and > > you had to change cogs to the written up > inventory > > value? did they get rid of part of it and you > had > > to jack up COGS by the pro-rata share of the > > inventory fair value write-up? i completely > > neglected this aspect of the problem. > > if inventory is written up to fair value at > acquisition date, the book says you have to > reflect the COGS by the amount that was written > up, if the inventory was sold during the year. > most of the CFAI practice questions and examples > were done this way. there is one example in the > text where you can see it but I dont have my book > in front of me to reference. the trigger is if > the inventory was sold during the year. If it > was, then 100% the COGS had to relfect the write > up as well. its very similair to the write up in > fixed assets to fair value. If fixed assets are > written up you take the additional depreciation > hit. But usually (I don’t remember the details here), the question goes: Here are the balance sheets of A and B at end 2008. What would the profit margin be on January 1st 2009 if A acquired B? In this case, there is no sale of inventories. What was the exact question in the exam? Does anyone remember?
MrGrey Wrote: ------------------------------------------------------- > if inventory is written up to fair value at > acquisition date, the book says you have to > reflect the COGS by the amount that was written > up, if the inventory was sold during the year. > most of the CFAI practice questions and examples > were done this way. there is one example in the > text where you can see it but I dont have my book > in front of me to reference. the trigger is if > the inventory was sold during the year. If it > was, then 100% the COGS had to relfect the write > up as well. its very similair to the write up in > fixed assets to fair value. If fixed assets are > written up you take the additional depreciation > hit. yep. did you make an adjustment for the fair value of inventory? was the entire inventory sold? i am just looking for an answer as to how people figured out how much cogs needs to be adjusted by.
The answer that matched had 100% of the markup included in COGS.
so they sold their entire inventory? AKA original COGS for subsidiary was the book value of their entire inventory, and so you adjusted it by the mark-up?
Why don’t I remember this question?
it was the question about the gross margin of the combined entity
supersharpshooter Wrote: ------------------------------------------------------- > so they sold their entire inventory? AKA original > COGS for subsidiary was the book value of their > entire inventory, and so you adjusted it by the > mark-up? i realldy dont remember the exact wording of the vignetta. all I know is there was no way they were simply asking what the current ratio would be after the aqcuisition, especially since there was a mark up in inventory. That was my thinking on exam day but I have no clue anymore about anything. I do remember the answer was C, if you did not adjust COGS and after you adjusted for the full wrtie up of inventory the answer was B and came up exactly. take it for what its worth, we will never know.