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Financial Accounting II (MGT401)

 

Topic: Valuation of Inventory  

Year

Particulars

Effect on Cost of Goods Sold

(simply mention that whether it will increase or decrease)

Effect on Profit

(simply mention that whether it will increase or decrease)

2013

Change in Opening Inventory

 Decrease

 Increase

2013

Change in Closing Inventory

 Increase

  Decrease

2014

Change in Closing Inventory

 Decrease

  Increase

2015

Change in Closing Inventory

 Decrease

  Increase  

 

b) Justify your answer with logical arguments.

Closing inventory is the part of cost goods sold and always less from the inventory. The following formula appear in cost of goods sold as:

                Opening inventory

                                                                 Add:            Purchase

                                                                 Less:               Closing inventory

Example take for the years ended 201 and vice ver3 in which if XYZ use WAC then high amount less from inventory as a result cost goods sold increase, as a result profit decrease because cost of goods sold increase.

Cost of goods sold treated as expense and less from sales.  

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