Reference no: EM132563501

Question (a) Please name the applicable Australian Accounting Standard, and explain how the cost of inventory is calculated by referring to the components of the cost of inventory.

Question (b) Briefly distinguish between the following costing methods by providing a brief explanation for the calculations under each method:

(i) Specific Identified Cost,

(ii) Weighted Average,

(iii) FIFO, and

(iv) LIFO

Question (c) If prices are rising over time, which costing method will result in the highest closing inventory?

Question (d) The subsequent measurement of inventory is done using the 'lower of cost and net realizable value' approach, with Net Realizable Value (NRV) being defined as "the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale". Please provide three examples of 'costs necessary to make the sale'.

Question (e) In the Australian Accounting Standards as well as in the International Financial Reporting Standards (IFRS) the use of the LIFO method to measure inventory is not allowed, while the US GAAP allow the use of the LIFO method. Please explain briefly why the use of the LIFO method is in Australia prohibited for both accounting and tax purposes.