question says:
cost of ending inventory computed using FIFO = 4.3 M
NRV = 4.1 M
Current replacement cost = 3.8 M
If the co. is using IFRS , instead of US GAAP, its COGS (in M) is most likely:
A same
B. 0.3 lower
C. 0.3 higher
ans is A.
According to me if co. uses US GAAP its COGS is reduced by 0.5 M (ie lower of Cost or MV, 4.3,3.8)
IFRS its COGS will be reduced by 0.3 M (ie 4.3-4.1)
can anyone explain how ans is A ?
There was an error in the answer choices on that question, you can check the erata page on top of the mock exam link. It should have been written as such:
A. .3 lower
B. the same
C. .3 higher
with the correct answer being A. .3 lower
I don’t believe your reasoning is correct however. With GAAP, you will write down .5M, which increases COGS by .5M. With IFRS, you write down .2M so your COGS is increased by .2M. That means that under IFRS, COGS is .3 lower than with GAAP. Someone correct me if I’m wrong.
@ ucbv : I failed to present my view. I got your point. Thanks.
ucbv – I think you’re correct. the trick for me was to remember inventory writedowns ↑ COGS.