Question

Inventory Method In addition to an accounting method, the method of valuing inventory is important to determine the expense for the inventory that was sold within a period, called Cost of Goods Sold. Read the "Inventories" section starting on page 13 (source 2) and answer the following questions. 10. When is inventory valued to determine taxable income? 11. To determine the value of inventory sold there should be a method for.... Ling Inventory b. V Ling Inventory 12. Since small businesses likely do not have an elaborate (costly) inventory system. What exception to an inventory method does the IRS give small business taxpayers?

Answer 1

10. In order to determine taxable income, inventory is valued at the end of the year. Your beginning inventory plus the items you buy each year minus your ending inventory form your Cost of Goods Sold (COGS).

11. a) Identifying Inventory

b) Valuing Inventory

12. IRS allows small businesses to use cash basis for accounting inventories instead of accrual.

13. Inventory costs can include raw materials, work in process as well as finished goods.

Or

Inventories includes goods lying in warehouse, goods in transit, consignment goods, goods sent n return or approval basis, sales returns, shipment terms, etc.

14. The IRS provides three options for identifying inventory:

a). Specific Identification method

b). FIFO

c). LIFO

15. The IRS provides three options for valuing inventory:

a). Weighted average

b). FIFO

c). LIFO

16. Yes. If you lose inventory to theft, or because a fire, flood or other disaster damaged your business, you can claim your loss as a tax deduction. Once you calculate the amount of your loss, you can either include the amount as part of the cost of goods sold or as a separate adjustment to inventory.

17.

a). No

b). No it will be capitalised as Non-current asset in property plant and equipment.

c). Deduction or recovery in the form of depreciation shall be charged to such Non-current asset on yearly basis over the life of asset.