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Tài liệu hướng dẫn ôn thi CFA Level 1 phần Financial Reporting and Analysis: Inventories, Long-term Assets, Referred Taxes and On and Off Balance Sheet Debt | The following is a review of the Financial Reporting and Analysis principles designed to address the learning outcome statements set forth by CFA Institute . This topic is also covered in INVENTORIES Study Session 9 EXAM FOCUS This topic review discusses specific analytical processes for inventory. The complication in analyzing inventory is that firms can choose among different cost flow methods FIFO LIFO and weighted average cost. You should know how to calculate inventory balances and COGS using all three methods and how to convert LIFO inventory and LIFO COGS to a FIFO basis for comparison. You must understand how the different cost flow methods affect the firm s liquidity profitability activity and solvency ratios. INVENTORY ACCOUNTING Merchandising firms such as wholesalers and retailers purchase inventory that is ready for sale. In this case inventory is reported in one account on the balance sheet. On the other hand manufacturing firms normally report inventory using three separate accounts raw materials work-in-process and finished goods. The choice of inventory cost flow method affects the firm s income statement balance sheet and several important financial ratios. Additionally the cost flow method can affect the firm s income taxes and thus the firm s cash flow. The inventory cost flow method should not be confused with the inventory valuation method as required by IFRS and U.S. GAAP. Generally inventory is reported on the balance sheet at cost and a writedown loss is recognized if the market value of inventory declines below cost. The valuation method lower of cost or net realizable value for firms reporting under IFRS and lower of cost or market for firms reporting under U.S. GAAP is applied regardless of the cost flow method. Cost of goods sold is related to the beginning balance of inventory purchases and the ending balance of inventory. The relationship is summarized in the following equation COGS beginning inventory purchases - ending inventory .
