Question

I NEED BOTH QUESTION ANSWERED

Question 1

The following information refer to inventory item A of company XYZ on December 31, Year 1.

Historical Cost- $200,000

Replacement cost- $100,000

Estimated selling price $170,000

Estimated cost to complete and sell- $20,000

Normal profit margin (as % of net realizable value)- 20%

Instructiuons

a) Determine the net realizable value (NRV) for inventory item A. Determine the lower-of-cost-or-net-realizable-value (LCNRV) under IFRS.

b) Under IFRS rules, provide the write-down journal entry for inventory item A in year 1 if a write-down is necessary.

c) Determine the market value for inventory item A under the US GAAP lower-of-cost-ormarket rule for inventories. Determine the lower-of-cost-or-market (LCM) under US GAAP.

d) Under US GAAP rules, provide the write-down journal entry for inventory item A in year 1 if a write-down is necessary.

e) Assume that the selling price increases to $180,000 in Year 2, provide the reversal of write-down journal entry under IFRS if a reversal is necessary.

Question 2

Company ABC constructed a new factory at a cost of $2,000,000. The company also purchased new machinery amd equipment at a cost of $200,000. The company spent another $10,000 to configure and bring the machinery and equipment into working condition. The company estimates that the cost to dismantle and remove the factory and machinery after 10-year of use will be $100,000 and $50,000, respectively.

instruction:

a) Calculate the present value factor with an annual discount rate of 5% for 10 years.

b) Determine the total cost of the new factory (including estinated dismantling and removal)

c) Determine the total cost of the new machinery and equipment (including estimated dismantling and removal)

d) Provide the journal entry to record the intial recognition of costs for the new factory and machinery.

Answer 1

Answer 1

a) NRV= Sale Proceeds- Cost to sale = $170000-$20000= $ 150000.

b) historical cost=$ 200000

NRV= $ 150000

Necessary to write down cost of inventory upto NRV=$200000-$150000

Inventory Write down A/c Dr. $ 30000

To Inventory A/c $ 30000

c) Market Value under us gaap is replacement cost of inventory ie: $ 100000

Lower of cost or market value= lower of $ 200000 or $ 100000= $ 100000

as per us gaap inventory should be value at $ 100000 at replacement cost.

d) Jouranal entry for written off under US GAAP

Inventory Write Down A/c Dr. $100000

To Inventory A/c $ 100000

(Being inventory write down from cost to market value ie: repalcement cost)

e) Reversal entry under IFRS

Revised Sale Price= $ 180000-$20000=$ 160000

NRV= $ 120000

Increase in sale price= $ 40000

Inventory A/c DR $ 40000

To Inventory Write Down $ 40000

( Being inventory value restore upto revised sale price less cost to sell)

Note for every part

inventory write down will be treated as loss, and inventory write up is treated as profit.

2) PV factor @ 5% for 10 years

year	Pv Factor 1/(1+r)year
1	0.952
2	0.907
3	0.864
4	0.823
5	0.784
6	0.746
7	0.711
8	0.677
9	0.645
10	0.614

b) Total Cost of Factory= $2000000+ Present value of estimated dismantling and removal cost after 10 years

= $ 2000000+ 0.614*$100000= $ 2061400

c) Total Cost Of machinery= $200000+ configuration Charges+Present value of estimated dismantling and removal cost after 10 years

= $ 200000+$10000+0.614*$50000

= $ 240700

d) Journal Entry to record

Factory

Factory A/c Dr. $ 2061400

To Accounts Payable $ 2061400

Machinery

Machinery A/c Dr. $ 240700

To Accounts Payable $ 240700