Island Solutions is a technology business that retails and wholesales computer hardware along with a wide variety of technology products and solution services. Recently, several competitors have entered the market and introduced new products that might drive some of the business’ inventory into obsolescence. The company has always been IRFS compliant and wants to ensure that it follows the appropriate authoritative literature in determining the accounting for some significant market changes. The accountant at Island Solutions has tasked two small teams of interns to conduct several pieces of research and dry-run practices. A) Under IFRS, what inventory accounting method(s) / cost flow assumption(s) is/are Island Solutions allowed to use and prohibited from using? B) What is the purpose of the current ratio? Assume that Island Solutions want to compute its current ratio, which inventory method (FIFO or Average Cost) would give a more meaningful current ratio. Explain. C) Island Solutions has discovered that all of its competitors are using another inventory method and is worried. Can the company change its inventory accounting method, on what grounds? Discuss two (2) trade-offs for the company.
Not a writing assignment! Just seeking understanding
Island Solutions is a technology business that retails and wholesales computer hardware along with a
wide variety of technology products and solution services. Recently, several competitors have entered
the market and introduced new products that might drive some of the business’ inventory into
obsolescence. The company has always been IRFS compliant and wants to ensure that it follows the
appropriate authoritative literature in determining the accounting for some significant market changes.
The accountant at Island Solutions has tasked two small teams of interns to conduct several pieces of research and dry-run practices.
A) Under IFRS, what inventory accounting method(s) / cost flow assumption(s) is/are Island
Solutions allowed to use and prohibited from using?
B) What is the purpose of the
current ratio, which inventory method (FIFO or Average Cost) would give a more meaningful
current ratio. Explain.
C) Island Solutions has discovered that all of its competitors are using another inventory method
and is worried. Can the company change its inventory accounting method, on what grounds?
Discuss two (2) trade-offs for the company.
Step by step
Solved in 5 steps
