Gibson Lumber Limited is a small sawmill operation, servicing Atlantic Canada. It is a privately traded company,
Question:
Gibson Lumber Limited is a small sawmill operation, servicing Atlantic Canada. It is a privately traded company, using ASPE. Gibson does not have a sophisticated costing system for its inventory. It estimates the cost of its inventory using the periodic average cost method and performs a physical count at year end. The physical count is also performed using estimation techniques, such as measuring the piles of finished lumber and scaling the log piles.
Global Lumber Inc., an international lumber company, is a publicly traded company using IFRS that has just expanded into Atlantic Canada. It has a sophisticated inventory system including bar codes on each piece of lumber produced, along with detailed records of production costs. It uses the FIFO cost method under a perpetual inventory system.
Lumber prices are controlled by a commodity market and have been increasing slightly over the past year.
Instructions
(a) Are there any specific differences related to the use of the two different accounting standards-ASPE and IFRS-that financial analysts should consider when evaluating the management of inventory by Gibson and Global?
(b) Would the use of the two different inventory systems-periodic and perpetual-affect the comparison of the financial statements of each company? If so, explain how.
(c) Would the use of the two different cost methods-average cost and FIFO-affect the comparison of the financial statements of each company? If so, explain how.
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine