Zimt AG wrote down the value of inventory in 2007 and reversed the write down in 2008. Compared to ratios calculated if the write down had never occured, Zimt’s reported 2007 A. current ratio was too high B. gross margin was too high c. inventory turnover was too high The answer is C, but heres thier explanation: C is correct. The write down reduced the value of inventory and increasdd cost of goods sold in 2007. The higher numerator and lower denominator mean that inventory turnover ratio as reported was too high How would a write down increase COGS? Wouldnt it decrease it since your reporting a lower inventory cost per unit sold?
Begin Inventory + Purchases - End Inventory = COGS. Begin Inventory and Purchases is the same. Put numbers Begin Inv = 200 Purchases = 100 End Inventory = 150 say COGS = 200 + 100 - 150 = 150 Now say there was the writedown - and End Inventory became 100 Applying the same to the above -> COGS = 200
thanks!
dtrynoski Wrote: ------------------------------------------------------- > Zimt AG wrote down the value of inventory in 2007 > and reversed the write down in 2008. Compared to > ratios calculated if the write down had never > occured, Zimt’s reported 2007 > > A. current ratio was too high > B. gross margin was too high > c. inventory turnover was too high > > The answer is C, but heres thier explanation: > C is correct. The write down reduced the value of > inventory and increasdd cost of goods sold in > 2007. The higher numerator and lower denominator > mean that inventory turnover ratio as reported was > too high > > How would a write down increase COGS? Wouldnt it > decrease it since your reporting a lower inventory > cost per unit sold? when youre writing something down, it is being impaired and it is being charged to the P&L my brother from another mother, therefore, it hits COGS, increasing, reducing inventory and increasing the ratio bros