You are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to resell has escalated during the later part of this period.
Your client, Javonte Gish, mentions that because her business sells perishable goods, she has striven to maintain a FIFO flow of goods. Although sales are good, the increasing cost of inventory has put the business in a tight cash position. Gish has expressed concern regarding the ability of the business to meet income tax obligations.
Prepare a memorandum that identifies, explains, and justifies the inventory method you recommend your client, Ms. Gish, adopt.
If we follow the FIFO method, it would result in low net income because, during later parts of the year cost of acquiring is increased.
Following FIFO method would be the solution as it will result in lower net income and the result will be lower tax liability comparatively.
In this kind of business it will always be beneficial if we follow the average method of inventory taking as it will equally distributes the costs and is also recommended most commonly.
You are a financial adviser with a client in the wholesale produce business that just completed...
You are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to resell has escalated during the later part of this period. Your client, Javonte Gish, mentions that because her business sells perishable goods, she has striven to maintain a FIFO flow of goods. Although sales are good, the increasing cost of inventory has put the business in a tight cash...