Hello. I have a quick question regarding why reversal of a write down shifts COGS to the prior year? I’m referencing question 13 in reading 29 (inventories). Thank you so much.
Presumably this is a write-down of inventory.
When you write down inventory, it increases COGS in the year of the write-down. (Note: if the write-down is material, it will be shown as a separate line item from COGS, but it’s still essentially COGS.) If you later write up inventory, it decreases COGS in the year of the write-up.
Higher COGS in the early year, lower COGS in the later year: you’ve shifted COGS from the later year to the earlier year.
QED
COGS=begin invent+purchase-endings invent
when you write down inventory, ending inventory goes down which makes COGS increase, and vice versa.