Analyzing Inventory Disclosure Comparing LIFO and FIFO urrent asset section of t
ID: 2508801 • Letter: A
Question
Analyzing Inventory Disclosure Comparing LIFO and FIFO urrent asset section of the 2014 and 2013 fiscal year end balance sheets of The Kroger Co. are The c presented in the accompanying table: January 31, 2015 February 1, 2014 (S millions) Current assets Cash and temporary cash investments..... . . .. .. Deposits in-transit . Receivables . FIFO inventory $401 958 1,116 6,801 (1,150) 704 $8,830 988 1,266 6,933 (1,245) 701 Prepaid and other current assets. . . . . . . ..$8,911 In addition, Kroger provides the following footnote describing its inventory accounting policy (as- sume the following is their complete disclosure):Explanation / Answer
a)FIFO inventory-LIFO reserve=LIFO inventory $6,933 million – (-$1,245 million) = $8,178 million
b) The cumulative effect of LIFO is to increase the cumulative pretax income by $1,245 million.
c) Cumulative tax saving from LIFO = LIFO reserve*tax rate -$1,245 million x 0.35 = $435.75 million As of 1/31/2015, Kroger has cumulative tax saving of -$435.75 million since the use of LIFO
d) FIFO net earning = LIFO net earning + ?LIFO reserve *(1-tax rate)
$1,728 million + [(-$1,245 million – (-$1,150 million)) x (1 - 0.35)] = $1,666.25 million
e) LIFO Inventory turnover =$85,512 / [((6933-(-1245)) + (6801-(-1150))) / 2]
= $85,512/ [(8178+7951)/2]
=$85512/8064.5
=10.60
f) FIFO GOGS=LIFO COGS-?LIFO reserve = 85,512-((-1245)- (- 1150)) =85,607
FIFO Inventory turnover=85,512 / [($6,933 + $6,801) / 2]
= 85,512/10,333.5
= 8.28