Question

In: Accounting

examine the costs that Wal-Mart includes in inventory and cost of sales. Defend the three (3)...

examine the costs that Wal-Mart includes in inventory and cost of sales. Defend the three (3) descriptions that Wal-Mart used to classify inventories, and suggest two (2) other descriptions that Wal-Mart could include within their notes that would be useful to financial statement users. Justify your response.

Solutions

Expert Solution

$ million

Particulars

2015

2014

Cost of Sales

365,086

358,069

Inventory

45,141

44,858

According Walmart’s 2015 Annual report, Walmart uses three methods to classify its segments of inventories –

  1. Inventories are valued at the lower of cost or market as determined primarily by the retail inventory method of accounting, using the last-in, first-out (“LIFO”) method
  2. Walmart’s International segment values its inventories usingthe retail inventory method of accounting, using the first-in, first-out (“FIFO”) method.
  3. The inventory at the Sam’s Club segment is valued based on the weighted-average cost using the LIFO method.

The above three methods being used by Wal-Mart is as per accounting regulations and are considered as prudent accounting practices.

As for any additional statements that Walmart can include in their notes that would be useful to financial statement users, I would suggest that they explain why they used different inventory methods for each of their segments and the impact that each method has on that segment.


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