Question 1: FIFO, LIFO, Lower-of-Cost-or-Market, Weighted-Average and Specific I

Question

Question 1: FIFO, LIFO, Lower-of-Cost-or-Market, Weighted-Average and Specific Identification are methods of valuing inventory. First person into thread gets to pick any one of the 5 inventory methods and defend their choice. Second person gets to pick one of the remaining 4 methods and defend their method. Third person gets to choose from the remaining 3 to defend. Fourth person gets to choose from the remaining 2 to defend. Finally the fifth person gets the last method to defend. Remaining class associates get to start the conversation of why they agree or disagree with chosen methods and why. Be nice.

Question 2 Discuss cash and cash equivalents. How important are the items that fall within this category to the successful operations of a company?

Explanation / Answer

Question 2) Cash and Cash equivalents:-

a) Cash means the following:-

i) Cash in hand.

ii) Cash at Bank.

b) Cash Equivalents are short-term highly liquid investments, readily convertible into cash and which are subject to insignificant risk of changes in values and securities with short maturity period like three months or less from the date of aquisition. In short, Cash equivalent mean short term marketable securities.

Question 1)

Specific identification method for determining cost of inventories:-

Specific identification method means directly linking the cost with specific item of invenories. This method has application in the following conditions:-

a) In case of purchase of item specifically segregated for specific project and is not ordinarily inter-changeable.

b) In case of goods or services produced and segregated for specific project.

Where Specific Identification method is not applicable:- Where Specific Identification method is not applicable, the cost of inventory is valued by following method:

i) Last-In-First Out (LIFO) Method.

ii) First-In-First Out (LIFO) Method.

iii) Weighted average method.

As per US GAAP (Generally accepted accounting principles), Last-In-First Out (LIFO) Method of stock valuation is widely used.

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