Q2ISTQ - Intermediate Accounting (Kieso)

Question

All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the: (a) definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. (b) average-cost method is prohibited under IFRS. (c) inventory basis determination for write-downs differs between GAAP and IFRS. (d) guidelines are more principles-based under IFRS than they are under GAAP.

Step-by-Step Solution

Answer

The correct option is “b.” 

Step1: LIFO cost flow assumption

(b) Under IFRS, the average cost method is prohibited, and the LIFO cost assumption is prohibited under IFRS.

Step2: Explanation of wrong options

(a) Under GAAP and IFRS, the definition of lower-of-cost-or-market is the same.

(c) Both GAAP and IFRS have a different basis for the write-down of inventories. 

(d) Yes, IFRS is more principle-based than GAAP.

Thus, the correct option is the second one.