By following the matching principle all of the costs associated with a particular product, not just its wholesale price, is expensed when the item is sold. Requirement 2 - A Generally, the lower of cost or market method is used to value inventory in order to “avoid reporting inventory at an amount greater than the benefits it can provide” (Spiceland, Sepe, & Nelson, 2013, p. 476). According to Spiceland, Sepe, and Nelson (2013) the “change in replacement cost usually is a good indicator of the direction of change in selling price” (p. 477). When the change in replacement cost is negative the LCM method allows companies to apply the conservatism principle. The conservatism principle involves “recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received” (The conservatism principle).
Analysis of Issue On what basis did Medicis initially justify the use of replacement cost to estimate returns? Why is it valid or invalid? Medicis justified the use of replacement to estimate returns using ASC 605-15-15-2 (Revenue Recognition - Products – Scope and Scope Exceptions) which states including: 15-2 (a). [E]xchanges by ultimate customers of one item for another of the same kind, quality, and price (for example, one color or size for another) are not considered returns for purposes of this Subtopic. E&Y reasoned this as it creates an exception to the general rule of reserving for expected future product returns at the gross sales price and deferring the recognition of an equal amount of revenue.
An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based on hours of utilization. The auditor concurs with the change, although it has a material effect on the comparability of the entity’s financial statements. 6. An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.
Since the Walton Work Wear line is in the production stage, its accumulated development costs should be capitalized. The Carroway Cool Top has not started it commercial production which would allow the development costs not to be amortized yet. Also interest costs on loans to generate financing for the R&D activates of a product can be capitalized rather than expensed. The capitalization of interest would allow CCL to reduce taxable income in the future when it is more profitable. I would recommend that CCL make the above changes immediately so that the financail statements are not incorrect.
The first being Recoverability Test, this step indicate the goodwill is impairment. The second step is completed to measure the loss. Independent Accounting Standards Body uses only the second process to measure the loss (Wearing, 2008). IASB prefers to use the one-step approach because they feel that, to implement the second step is costly and complex. On the allocation of goodwill, Financial Accounting Standards Board does this based on the reporting unit level while Independent Accounting standard body uses cash generating unit (Williams, 2003).
Allocating cost this way would not be accurate since DOP could not see the improvement in cost control from electronic order and desktop delivery. The company should use the ABC approach which is recognized costs by their activities and drivers for its pricing system. The cost drivers are used as bases to allocate costs to the product and thus would reflect more accurate product costs than using traditional cost pricing system. Table 1.1 Dakota Office Products: Income Statement CY2000 Sales | $42,500,000 | | 121.4% | ($42,500,000/$35,000,000) | Cost of items purchased | $35,000,000 | | 100.0% | ($35,500,000/$35,000,000) | Gross margin | $7,500,000 | | 21.4% | ($7,500,000/$35,000,000) | Warehouse personnel expense | $2,400,000 | | 6.9% | ($2,400,000/$35,000,000) | Warehouse
Ethical Challenges and Agency Issues Debra Novy ACC/557 June 4, 2012 Cynthia Reyburn Ethical Challenges and Agency Issues Ethical Challenges-Timely Reporting The ethical challenges faced with timely reporting in reference to budget problems mostly stem from the lack of communication or failure to provide for unforeseen challenges to meet the deadline. The planning phase of an audit should take into consideration the possibility of challenges beyond the parameters set in completing the audit. The auditors should provide exception statements in their estimates to address how the unforeseen issues will be handled. The case states that the client initiated a new set of procedures with regard to product costs. The auditor’s estimate did show extra time to address that portion of the audit.
Decision Making Accounting (ACC) 561 November 11, 2010 Eddie Mattison, Facilitator Decision Making Budgets and Performance Reports “Budgets…help to coordinate and implement plans. They are the chief devices for disciplining management planning. Without budgets, planning may not get the front and center focus that it usually deserves.” (Horngren at el. 2008, p. 13) Guillermo must be able to operate within his budgets; otherwise he may begin to operate at a profit loss. Creating a budget will allow Guillermo to know the exact amount of money that he has to allocate to specific expenses.
does not have to accrue the liability because the exact amount of the liability cannot be reasonably estimated. The company has to make a note disclosure and state all the facts of the case and the high chance of losing the case because this lawsuit (and the possibility of 20more) is relevant to the future financial position of the company and thus the users of the financial statement should know about the situation. Part C - 5 Marks i.) Lower of cost and net realizable value method (LCNRV) is a method of inventory valuation in which the company reports its cost of goods sold as either the cost or the net realizable value depending on which is lower (in accordance with the relevance and prudence criteria of accounting). This is in order to ensure that their inventory and income statement are not overstated.
However, within this broad framework, many details need to be worked out, and the costs and benefits to businesses will depend on how the government tackles these finer points (Horne, 2011). At the core of a cap and trade system is the pollution permit (often called an allowance), which is essentially a commodity created by governments in recognition that the atmosphere cannot be treated as a free dumping ground. Businesses regulated by cap and trade are required to own one tonne’s worth of pollution permits for every tonne of pollution they produce (Horne, 2011). If pollution permits are costly, businesses will choose to reduce their pollution so they need fewer permits. Like a carbon tax, this approach strengthens the economic case for investing in clean energy (Horne,