Halm Skidoos Limited a private company that began

operations in #2018
Halm Skidoos Limited a private company that began operations in

Halm Skidoos Limited, a private company that began operations in 2014, always values its
inventories at their current net realizable value. The company uses ASPE. Its annual inventory
figure is arrived at by taking a physical count and then pricing each item in the physical
inventory at current resale prices. The condensed income statements for the company's past
four years are as follows:

Instructions

(a) Comment on the procedures that Halm uses for valuing inventories.

(b) Prepare corrected condensed income statements using an acceptable method of inventory
valuation, assuming that the inventory at cost and as determined by the corporation (using net
realizable value) at the end of each of the four years is as follows:

(c) Compare the trend in income for the four years using the corporation's approach to valuing
ending inventory and using a method that is acceptable under GAAP.

(d) Calculate the cumulative effect of the difference in the valuation of inventory on the ending
balance of retained earnings from 2014 through 2017.

(e) Comment on the differences that you observe after making the corrections to the inventory
valuation over the four years.

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