Nike Inc.’s financial statements show that the company uses the first-in, first-out (FIFO) method as its cost flow assumption for inventories (Nike Inc., 2021, p. 69). The company chose this method because it believes it best reflects the actual movement of inventory and matches the physical flow of goods (Nike Inc., 2021, p. 70).
Nike reports two types of inventories on its balance sheet: finished goods and work-in-progress. Finished goods inventory refers to products that are ready to be sold, while work-in-progress inventory consists of partially finished products that are in the process of production (Nike Inc., 2021, p. 70).
Under International Financial Reporting Standards (IFRS), companies are not required to use any specific cost flow assumption. Instead, entities must use a cost formula that reflects the actual flow of goods (International Accounting Standards Board, 2018). This may include the FIFO, weighted average cost, or specific identification method. However, IFRS does require companies to disclose their cost formula used for inventories in the financial statements (International Accounting Standards Board, 2018).
In conclusion, Nike’s financial statements reflect the use of the FIFO method for inventories, with finished goods and work-in-progress inventory reported separately on the balance sheet. While the company could choose a different cost flow assumption under IFRS, it would still be required to disclose its cost formula in its financial statements.
COST FLOW ASSUMPTIONS
Walmart uses the cost flow assumption retail inventory method of accounting is last-in-first-out (LIFO) for Walmart’s U.S segment’s inventories. While Walmart’s international segments use first-in-first-out (FIFO), and Sam’s Club segment is valued using the weighted-average cost LIFO method. The company uses the retail inventory method of accounting which results in inventory being valued at the lower cost or market since permanent markdowns are immediately recorded as a reduction of the retail value of inventory. when necessary, they record a LIFO provision for the estimated annual effect of inflation, and these estimates are adjusted to actual results determined at year-end.
LIFO provision is calculated based on inventory levels, markup rates, and internally generated retail price indices. It provides for estimated inventory losses, or shrinkage, between physical inventory counts because of a historical percentage of sales. Following annual inventory counts, the provision is adjusted to reflect updated historical results.
Walmart only uses one type of inventory to report on the balance sheet which I finished goods. Walmart’s financial statements would be significantly different if they chose to use international financial reporting (IFRS) rather than the Generally Accepted Accounting Principles (GAAP). One of the ways that the financial statement will be different will be the inventory. Under GAAP all inventories are required to be accounted for and expensed in the same period. Under the IFRS there are two standards IAS International accounting standards stated that the inventory should be reported at the lower of cost and net realizable value. The IAF states that acceptable practices for measuring inventory are First-in, First-out and the weighted inventories at the lower of cost or market determined the primarily retail inventory method of accounting.
Changing accounting methods could cause issues in the area or inventory reporting for Walmart. Since Walmart is currently valuing inventory at a lower cost, it would have to change its method of recording inventory. This would cause at least one month where inventory numbers are skewed, but going forward, the inventory would even out, but would not be comparable to the historic numbers. If Walmart were to change to IFRS reporting, it would be able to expand internationally easier and would be able to attract international investors (Gavin, 2019).