Open AccessThe Impact of Inventory Valuation Methods on Corporate Financial Reports.
Author(s) -
A. Bruce Caster,
Wanda Causseaux
Publication year - 2016
Publication title -
journal of business case studies
Language(s) - English
Resource type - Journals
eISSN - 2157-8826
pISSN - 1555-3353
DOI - 10.19030/jbcs.v12i3.9743
Subject(s) - fifo and lifo accounting , valuation (finance) , inventory valuation , accounting , income statement , computer science , market liquidity , actuarial science , balance sheet , earnings , cash flow statement , dividend , financial statement , economics , cash flow , business , finance , fifo (computing and electronics) , audit , computer hardware
Business students are generally introduced to LIFO and FIFO in their first accounting course. However, that introduction generally focuses exclusively on computing ending inventory and cost of goods sold. Students are rarely challenged to compute or analyze the impacts of LIFO and FIFO on the income statement, balance sheet, or cash flow statement. This paper presents a hypothetical case designed to provide a framework within which students can compute, analyze, and discuss the financial statement impacts and economic impacts of choosing one or the other of these accounting methods. The questions in this case also address the effects of this choice on financial indicators like liquidity ratios, the impacts of each method on quality of earnings, and the potential impacts of IFRS convergence on companies that are currently using LIFO.One important feature of this case is its adaptability to support a variety of learning outcomes in different courses. This flexibility results from making the questions posed in the case as independent of each other as possible. That independence allows a professor to select only the questions that support the learning outcomes for that professor’s specific course. The teaching notes discuss in detail possible course applications and uses of this case.