Question

write 150 words in a paragraph not definitions only.

First, we need to understand the basic inventory accounting; FIFO, LIFO and Average cost Method. After discussing basic differences among three different methods, please comment on the impact of each method on the income statement and balance sheets.

For PPE please discuss the depreciation methods and the impact of each depreciation methods on the income statement and balance sheet. Also, discuss the asset sale, impairments and restructuring costs, focusing on the financial statement impact.

Answer 1

FIFO Method is first in first out method. Under this method the good which are purchased first are issued first. This is the most commonly used method  

LIFO Method is last in first out method. Under this method the goods purchased last will be issued first.

Average cost method is average rate of purchase of goods. Under this method the goods are issued at average rate

Any method can be used in accounting and there will not be any impact on profit and loss account and balance sheet if the same method is used consistently.

DEPRECIATION METHODS

There are several types of depreciation methods

Straight-line
Double declining balance
Units of production
Sum of years digits

Under straight line method, the depreciation expense will be uniform for all the years whereas under double declining balance the depreciation expenses will be larger for initial years than its later years

Asset sales is sale of assets and profit or loss will be recognised in profit and loss account and asset will be removed from balance sheet

Impairment loss is a decrease in net carrying value of the asset. Impairment loss will have a adverse effect on profit and loss account and balance sheet ratios.

Restructuring costs is a one time cost that must be paid by the company when it reorganises its organisation. It is a non recurring operating expenses. It is less likely to affect on shareholders stake.