Inventory

Question 1

What is the difference in FOB shipping and FOB destination.

Answer 1

FOB shipping buyer owns at shipping point FoB destination seller owns at reaching destination.

Question 2

What are items affect cogs

Answer 2

Insurance cost and material and labor all needed

Question 3

What does accounting conservatism applies.

Answer 3

For interim financial statements, companies apply the same accounting principles as annual statements, but with conservatism emphasized.

That means:
• Losses → recognize immediately
• Gains → defer until realized

Question 4

Market or lower cost rule

Answer 4

1. Replacement cost
   → What it would cost to replace the inventory today
   
   2. NRV (ceiling)
      = Estimated selling price − Costs to complete/dispose
   3. NRV − Normal profit (floor)
      → Prevents excessive write-downs

⸻

Step 2: Determine “Market”

Market = replacement cost, but constrained between the ceiling and the floor

So:
• If replacement cost is above NRV → use NRV
• If replacement cost is below NRV − profit → use the floor
• Otherwise → use replacement cost