One of the main topics of your readings this week was the difference between FIFO and LIFO. These are both appropriate for different situations, but changing over from one to the other can cause some trouble for many companies. This week, you will imagine that you are in charge of this changeover.
The John Company has approached you and is considering changing from FIFO to LIFO for its inventory valuation. Refer to the FASB Codification, and prepare a 2- to 3-page Word document discussing the following:
How is a change in an inventory method reported in the financial statements?
Under GAAP, is the company required to provide rationale for this change in accounting principle? Explain your answer.
The company is also considering adopting dollar value LIFO rather than traditional LIFO. Evaluate the benefits of adopting dollar value LIFO.
Regardless of the inventory cost flow assumption chosen, the John Company must decide what items to include in its inventory. Discuss whether the following items should be included in the ending inventory of the John Company:
Goods in transit from a supplier, shipped FOB shipping point
Goods in transit to a customer, shipped FOB shipping point
Goods in transit from a supplier, shipped FOB destination
Goods in transit from a customer, shipped FOB destination
Goods held on consignment
Goods out on consignment
Goods out at a supplier for heat treating and painting