Niloy Neogi

1612631030
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Answer to Question No. 1.

1.The Retail Inventory Method

“The Retail Inventory Method is an accounting procedure used to estimate the value of a store's
inventory over time. It works by first taking the total retail value of all the products you have in
our inventory, then subtracting the total amount of sales, then multiply that amount by the cost-to-
retail ratio. An important part of accurately using the Retail Inventory Method is understanding
your business's cost-to-retail ratio, which is the value of our merchandise that is found whilst using
the retail inventory method. Another aspect of the Retail Inventory Method is the Ending Inventory
cost which is a popular financial figure for measuring the final value of goods available for sale at
the end of the accounting period. To calculate the cost of ending inventory using the retail
inventory method, follow these steps” (Westmoreland, 2018)
1.Calculate the cost-to-retail percentage, for which the formula is (Cost ÷ Retail price).
2.Calculate the cost of goods available for sale, for which the formula is (Cost of beginning
inventory + Cost of purchases).
3.Calculate the cost of sales during the period, for which the formula is (Sales × cost-to-retail
percentage).
4.Calculate ending inventory, for which the formula is (Cost of goods available for sale - Cost of
sales during the period). (Bragg, 2019)

For example, Manatee corporation is a retail shop sells groceries for an average of 1000$ which
cost it $500. This is a cost to retail percentage of 50%. Manatee corporation’s beginning inventory
has a cost of $3,000, it paid $5,000 for purchases during the month, and it had sales of $6,000. The
calculation of its ending inventory is:
Beginning inventory $3,000 (At cost)

Purchases + 5,000 (At cost)

Goods available for sale = 8,000

(-) Sales - 3,000 (Sales of $6,000 x 50%)

Ending inventory
$5,000

The retail inventory method's advantages are ease of calculation

1. The retail inventory method is just a standard. Results can never contend with a physical stock
tally.

2. The retail stock technique potentially deals with the change possibility that you have a
dependable markup over all things sold.
3. The procedure accepts that the valid reason for the markup rate proceeds into the present time
frame. If the markup was unique (as might be brought about by an after-occasion deal), the
aftereffects of the estimation will be mistaken.
3. The strategy doesn't work if an acquisition has been made, and the acquirer holds a great deal
of stock at a through and through exceptional markup rate from the rate used by the acquirer.

The retail inventory method's primary disadvantages are ease of calculation:

Then again, the retail inventory method is just precise. All evaluating no matter how you look at
it is the equivalent, and all estimating changes happen at a similar rate. As a rule, this isn't
practical in retail because of the numerous varieties that exist in inventory estimating. For
instance, deterioration, markdowns, item damage, and burglary can influence the retail stock's
cost. Therefore, any computations made utilizing the retail inventory method should serve just as
an estimate.

The accounting theory underlying the treatment of net markdowns and net mark up under
the method- The accounting theory underlying the treatment to be agreed on net markups and
net markdowns must be considered considering their impacts on the evaluated cost proportion. If
both net markups and net markdowns are utilized to show up at the cost proportion, finishing
inventory will be changed to an expected standard cost figure. Excluding net markdowns will
bring about the result being expressed at an estimate of the lower of cost or market. The lower
cost proportion showed up at by excluding net markdowns permit the valuing of inventory at an
amount that reflects its present utility. The supposition that will be that net markdowns speak to
the lost efficiency should be perceived in the markdown period. Completion stock is in this
manner esteemed based on its income, creating potential. It might be expected to deliver an
ordinary gross benefit whenever sold at winning retail costs in the following period.

Answer to Question No. 2.

Explanation: The deal had a number of ethical issues:
The market price of the timber is $8600000 and the contract price is $10000000. This shows
that the contract price is greater than that of the market price of the timber. Also, it is expected
that losses will occur when the purchase is affected. According to the accounting standards,
losses must be recognized during the period in which there is a decline in the market price. The
ethical issue involved is that there exists a problem when recognition of loss is ignored if a loss
is expected to occur while purchase has been initiated.
The unethical issue is the fact that there may be a conflict of interest between the financial CFO,
James Collins and the seller. Due to the fact that the two parties are related, the financial CFO
may have to favor the seller in the dealing.

Stakeholder harmed by the financial CFO decision

The CFO, James Collins decision affects the shareholders of the company. This is because, by
increasing the amount of expenses, the CFO is reducing the profitability of the company. Low
profitability means low retained earnings. The shareholders will be affected in terms of reduced
dividend earned due to the reduced retained earnings. If the loss is sure to happen, then the
shareholders, both new and continuing, will be harmed by the non-recognition of loss. Being an
accountant, the position of Person He is also under issue. He must not accept the financial report
in spite of knowing that the report violates the rules of GAAP.
 Answer to Question No. 3

Deterioration is a contra-asset account which shows the estimation of a preferred position over
its accommodating life. It is an assumption-based procedure to degrade an advantage over the
time. Since twofold declining balance limits more deterioration than essential year doesn't mean
it will continue deducting more regard. Over the hour of twofold declining methodology deducts
less and less estimation of advantages and making pay more costs consistently. On the other
hand, straight-line methodology diminishes balance in a predictable rate which over the time gets
identical to Double declining rate considering the way that after the accommodating life, both the
amassed devaluation modifies of each crumbling strategy become comparable. Consistently,
clerks can move to straight line procedure if the downgraded aggregate is more than double
declining technique. Straight line method is results into lower deterioration cost contrast with
twofold decrease strategy. Double decrease technique utilizes the double deterioration pace of
straight-line devaluation. Hence, its shows higher deterioration cost. Yet, this cost will be higher
for firs scarcely any years. After that it will go lower contrast with Straight line method. As the
deterioration cost is portion of cost over the helpful life, in the two method the cost will be same
over the long haul. In spite of the fact that double decline technique shows higher cost, it will be
lower than straight line strategy after a specific period. Deterioration of straight-line strategy will
be fixed with the exception of any remodel or expansion. Be that as it may, in the two
techniques, the total cost will be same.

References
Bragg, S. (2019, 3 04). AccountingTools. Retrieved from Retail inventory method:
https://www.accountingtools.com/articles/2017/5/13/retail-inventory-method

Westmoreland, D. (2018, 10 11). DEPUTY. Retrieved from Retail Inventory Method Calculator:
https://www.deputy.com/blog/retail-inventory-method-
calculator?fbclid=IwAR2BcoSdXJWg4prIhTe5xKefuBwOmhoPXeNuplV-hBCXVkpdLzFdOx2utiI