Question

or pan. Once a method has Do you been selected, what accounting requirement applies? FIFO and LIFO method 10. Which assumed inventory cost flow method: inventory system. Do *21. How does the ave a. usually parallels the actual physical flow of merchandise? tween a perpetual in b. divides cost of goods available by total units available for sale 22. When is it nece to determine a unit cost? *23. Both the gross c. assumes that the latest units purchased are the first to be sold? based on averages 11. In a period of rising prices, the inventory reported in Bert Com it is determined, pany's balance sheet is close to the current cost of the *24. Pawlowski whereas Ernie Company's inventory is considerably below its cur- available for sa rent cost. Identify the inventory cost flow method being used by each the estimated company. Which company probably has been reporting the higher *25. Cinderel gross profit? retail prices 12. Oscar Company has been using the FIFO cost flow method during the during a prolonged period of inflation. During the same time period, using the

  

Can u help me on #12?

Answer 1

1. There are two things to be considered by Oscar company
   1. Valuation of inventory,
   2. Maintaining liquidity.
2. Using FIFO method of valuation of inventory when there is a prolonged period of inflation will result in lower valuation of inventory consumption and higher valuation of closing inventory, which will further affect the net income (it will increase). It is suggested that Oscar company should go for a weighted average method of valuation of inventory which will reduce such varience.
3. And the next things is that the company is not maintaining, reserves for future perusal, which will have a great impact on the existence of the business. Paying off entire net income as dividends and not maintaining any reserves for future and that too during the period of inflation is not a good practice and it is suggested to maintain a certain percentage of net income as reserves for future use.