"Financial Report":Long-Lived Assets

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Questions 1:

If an analyst is concerned about the liquidity of a company’s inventory, he would most likely look in the notes to the financial statements to determine the:

A 、amount of inventories recognized as expense during the period.

B、 cost formula or inventory valuation method used.

C、 breakdown of inventory between work in progress and finished goods.

Questions 2:

The following information is available concerning a new showroom a company built. Construction started on 1 January 2012, and the grand opening was on 1 January 2014:

Financial Report:Long-Lived Assets

The depreciation expense (in millions) for the showroom in 2014 is closest to:

A 、€1.0175.

B 、€0.9575.

C、 €0.8375.

View answer resolution

【Answer to question 1】C

【analysis】

C is correct. The breakdown between work in progress and finished goods provides liquidity information because finished goods are ready to ship and thus more liquid than work in progress.

A is incorrect. The amount of inventories expensed as cost of goods sold has no effect on the liquidity of the inventory on hand.

B is incorrect. The inventory valuation method used is unrelated to the liquidity of the inventory.

【Answer to question 2】B

【analysis】

B is correct. Because the asset is self-constructed, the costs of specifically identifiable interest during the construction period can be capitalized and included in the cost of the showroom.

Financial Report:Long-Lived Assets