Explaining multiple inventory methods at one real-world company
The following footnote related to accounting for inventory was taken from the 2008 annual report of Wal-Mart. Inc.
Inventories The Company values inventories at the lower of cost or market as determined primarily by the retail method of accounting, using the last-in, first-out (“LIFO”) method for substantially all of the Walmart U.S. segment’s merchandise inventories. Sam’s Club merchandise and merchandise in our distribution warehouses are valued based on the weighted average cost using the LIFO method. Inventories of foreign operations are primarily valued by the retail method of accounting, using the first-in, first-out (“FIFO”) method. At January 31, 2009 and 2008, our inventories valued at LIFO approximate those inventories as if they were valued at FIFO.
Required
Write a brief report explaining the reason or reasons that best explain why Wal-Mart uses the LIFO cost flow method for its operations in the United States, but the FIFO method for its non-U.S. operations.
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