📖 存货：减值与披露

Financial Statement Analysis

I. Lesson Focus

This lesson examines inventory impairment rules under both IFRS and US GAAP, with special emphasis on the differences when LIFO is used. Candidates learn how to calculate impairment losses, when reversals are permitted, how to interpret and adjust the LIFO reserve to improve comparability across companies and standards, and the resulting impact on key financial ratios such as gross margin, current ratio, and ROE.

II. The Problem

A U.S. manufacturing company using LIFO has experienced falling raw-material prices for three consecutive years. Its ending inventory carrying value now exceeds current replacement cost, and the LIFO reserve disclosed in the notes has been shrinking. An analyst must determine whether an additional impairment charge is required, how to restate the financial statements onto an IFRS-comparable basis, and whether any previously recognized impairment can be reversed if prices later recover. These adjustments directly affect reported gross margin, current ratio, and ROE, and represent a frequent CFA exam topic in financial statement analysis and inter-standard reconciliation.

III. Inventory Impairment Principles and Accounting Treatment

The fundamental rule is the lower of cost or net realizable value (LCNRV) principle.

• US GAAP: For inventories valued using LIFO or the retail method, the lower of cost or market (LCM) rule applies. “Market” is defined as the middle value of three amounts: replacement cost, subject to a ceiling of NRV and a floor of NRV minus a normal profit margin.
• IFRS: A single LCNRV rule is used—inventory is carried at the lower of historical cost or net realizable value (NRV = estimated selling price – estimated costs to complete – estimated selling costs).

Impairment losses are recognized in the income statement, typically as part of cost of goods sold (COGS) or as a separate “inventory impairment loss” line, reducing both profit and the carrying value of inventory. The carrying amount must be reassessed each period.

Key distinction: - IFRS permits reversal of previously recognized impairment losses in subsequent periods when NRV increases, limited to the amount that restores the asset to its original cost. - Under US GAAP, once an impairment is recorded on LIFO inventory, it is generally not reversed (treated as a permanent write-down).

IV. The LIFO Reserve Concept and Adjustments

The LIFO reserve is the difference between the inventory value that would have been reported under FIFO and the value actually reported under LIFO:

$$ \text{LIFO Reserve} = \text{FIFO Inventory} - \text{LIFO Inventory} $$

It also represents the cumulative pre-tax income difference caused by using LIFO instead of FIFO.

Conversion formulas (restating LIFO statements to a FIFO-equivalent basis):

1. Adjusted Inventory = Reported LIFO Inventory + LIFO Reserve
2. Adjusted Working Capital = Reported Working Capital + LIFO Reserve
3. Adjusted Pre-tax Income = Reported Pre-tax Income + ΔLIFO Reserve
4. Adjusted After-tax Net Income = Reported NI + (ΔLIFO Reserve × (1 – tax rate))
5. Adjusted Equity = Reported Equity + (LIFO Reserve × (1 – tax rate))

where ΔLIFO Reserve = Current-year LIFO reserve – Prior-year LIFO reserve.

When prices are rising, ΔLIFO Reserve is typically positive and LIFO profit is understated. When prices are falling, ΔLIFO Reserve can be negative, making LIFO profit appear higher than FIFO profit; analysts must then scrutinize whether an impairment charge is also warranted.

V. Impact of Inventory Impairment on Financial Ratios

After an impairment charge: - Inventory and current assets decrease → current ratio falls. - Total assets decrease → asset turnover ratios rise. - COGS increases → gross margin and net profit margin decline. - Equity decreases (after tax) → ROE may initially fall but can later rise because the denominator is smaller (direction depends on magnitude).

Under LIFO, a shrinking or negative change in the LIFO reserve during falling prices signals possible overstatement of profit and the need to evaluate additional impairment.

Worked Cases

Case 1: LCNRV Calculation and Impairment Reversal (IFRS)

A company reports ending inventory at cost of $480,000. Current NRV is $410,000. A previous impairment allowance of $35,000 exists. In the following period NRV recovers to $450,000, then later to $460,000.

Solution: - Carrying value before current adjustment = 480,000 – 35,000 = $445,000. - LCNRV = min(480,000, 410,000) = $410,000. - Additional impairment loss = 445,000 – 410,000 = $35,000.

In the subsequent period with NRV = $460,000, the recoverable amount allows reversal of up to the previously recognized cumulative impairment ($70,000), but not above original cost. The company can reverse $50,000, bringing the carrying value to $460,000.

Case 2: LIFO Reserve Adjustment and Comparability

ABC Company uses LIFO. At year-end 2023: - LIFO inventory = $1,200,000 - LIFO reserve = $320,000 - Tax rate = 30% - Change in LIFO reserve during the year = –$45,000 (prices declined) - Reported gross profit = $680,000

FIFO-equivalent adjustments: - FIFO inventory = 1,200,000 + 320,000 = $1,520,000 - Adjusted pre-tax profit = 680,000 – (–45,000) = $725,000 - Adjusted after-tax net income = 725,000 × (1 – 0.3) = $507,500 (versus reported after-tax profit of $476,000) - Adjusted gross margin is approximately 3.1 percentage points higher.

Because ΔLIFO Reserve is negative, the LIFO statements actually overstate current-period profit. Analysts should investigate whether an additional impairment charge should have been recorded.

Case 3: LCM Application under US GAAP for LIFO Inventory

XYZ Company uses LIFO. Ending inventory at cost = $850,000. Replacement cost = $780,000, NRV = $820,000, NRV minus normal margin = $760,000.

Determination of market under LCM: - Market = middle value = max(760,000, min(780,000, 820,000)) = $780,000 - LCM carrying value = min(850,000, 780,000) = $780,000 - Impairment loss = $70,000

Because the company uses LIFO, US GAAP prohibits reversal of this $70,000 write-down in future periods even if prices recover. This contrasts with IFRS, where reversal would be permitted up to original cost and is a frequent exam differentiator.

Traps

Key Formulas

• LIFO Reserve = FIFO Inventory – LIFO Inventory
• Adjusted Inventory = LIFO Inventory + LIFO Reserve
• Adjusted COGS = Reported COGS – ΔLIFO Reserve
• Adjusted Gross Profit = Reported Gross Profit + ΔLIFO Reserve
• Adjusted Net Income = Reported NI + (ΔLIFO Reserve × (1 – tax rate))
• LCM Market = median(NRV – Normal Margin, Replacement Cost, NRV)
• Impairment Loss = max(0, Carrying Value – Recoverable Amount)
• IFRS Reversal = min(Prior impairment, New NRV – Current carrying value), not to exceed original cost

Practice Questions

Q1. Under IFRS, when net realizable value rises above the current carrying amount of inventory, a company:
A. Must reverse all prior impairment.
B. May reverse impairment up to the original cost.
C. Is prohibited from reversing any impairment.
D. May reverse only if it uses FIFO.

Q2. The LIFO reserve increases by $80,000 and the tax rate is 25%. The adjustment to after-tax net income is:
A. +$60,000
B. –$60,000
C. +$20,000
D. –$20,000

Q3. Under US GAAP, after a company using LIFO recognizes an inventory impairment, if market value subsequently recovers the company:
A. Must reverse the impairment.
B. May choose to reverse the impairment.
C. Generally may not reverse the impairment.
D. May reverse only after converting to FIFO.

Q4. A company reports LIFO inventory of $900,000 and a LIFO reserve of $150,000. The adjusted inventory value is:
A. $750,000
B. $900,000
C. $1,050,000
D. $1,200,000

Q5. When prices have been falling for several periods, the LIFO reserve will most likely:
A. Increase.
B. Decrease.
C. Remain unchanged.
D. Become negative and meaningless.

Q6. Which of the following is NOT a correct statement about the LCNRV rule under IFRS?
A. Impairment losses are recognized in profit or loss.
B. Subsequent reversals are limited to original historical cost.
C. The rule applies regardless of the cost-flow method used.
D. Reversal amounts are credited directly to retained earnings, bypassing the income statement.

Q7. When an analyst converts from LIFO to a FIFO basis, the current ratio will most likely:
A. Decrease.
B. Increase.
C. Remain unchanged.
D. Depend on the tax rate only.

Q8. In Case 2 above, a negative ΔLIFO Reserve most likely indicates that:
A. The company realized a LIFO liquidation gain.
B. Rising prices caused profit to be understated.
C. Falling prices may have created unrecorded impairment risk.
D. The firm’s tax burden has increased.

Answers

Takeaways

• Inventory is valued at the lower of cost or NRV (IFRS) or market (US GAAP LCM for LIFO); impairment flows through COGS or a separate loss line.
• IFRS allows impairment reversals up to original cost; US GAAP generally forbids reversals for LIFO inventory.
• The LIFO reserve is the bridge between LIFO and FIFO values and is the key adjustment variable.
• Adjusted net income = Reported NI + (ΔLIFO Reserve × (1 – t)); adjusted equity uses the cumulative LIFO reserve × (1 – t).
• Negative ΔLIFO Reserve (falling prices) can overstate LIFO profit and signals potential impairment that must be investigated.
• Master the three-value “middle-value” rule for LCM to avoid selecting replacement cost directly.