Question

This is a scenario question: As the chief accountant of Virginia Company, provide recommendations, giving all reasons based on your research on retail industry inventory best practices, management on: Which inventory method (FIFO, LIFO, average cost, or specific identification) you should use. Whether it is a good idea to keep using the periodic system as opposed to the perpetual inventory system.

Answer 1

Inventory Method to be used:

It is assumed that the economy is having rising prices. In this case, LIFO method of Inventory would be useful for the company to save more taxes. But it might reduce the profits to be shown to the stakeholders.

Inventory System:

Among both Periodic and Perpetual systems, using perpetual would be beneficial for the management to know the COGS and Ending Inventory at any point of time rather than visiting the godown and physically examining the same.

Hope it is helpful!!