Could someone explain why in question 7 when calculating the adjusted COGS you subtract the “charges included in COGS for inventory write downs” from the COGS originally given under LIFO. It seems to me like this would be double counting those charges since it says the charges are already included in COGS. However, I’m guessing it something to do with the fact that COGS are given under LIFO. In question 8 you are given the FIFO COGS and you add the charges to get adjusted COGS which makes sense to me. If anyone could further clarify I would appreciate it. Thanks
Read the question carefully… It says: “…and adjust figures to assume no valuation allowance is recognised by any company.” In q.7 you reduce COGS (which is an expense!) thus effectively and indirectly you increase net income. In q.8 you increase NI income directly. There is no difference between the two approaches: the one reduces COGS (expense) the other increases NI. The result is the same!