Question
Tallgrass Outfitters applies LCM item by item: find "market" for each product line by bounding replacement
cost between the ceiling and the floor, compare it with cost, and record the total write-down.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
Cost includes purchase price, import duties, transport and handling, less trade discounts and rebates. The cost formula — FIFO or weighted average — is then applied consistently to inventories of a similar nature and use.
Common mistakes
- Recomputing the weighted average only at the period end when a moving average is required under a perpetual system.
- Including selling costs or storage of finished goods in inventory cost.
- Switching cost formula between periods without treating it as a change of accounting policy.
IFRS vs US GAAP: US GAAP permits LIFO; IAS 2 prohibits it.
Further readingIAS 2: costing methods and NRV