Analyzing Effects of LIFO on Inventory Turnover Ratios The current assets of Exx

Question

Analyzing Effects of LIFO on Inventory Turnover Ratios The current assets of Exxon Mobil Corporation follow $ millions 2014 2013 Current assets Cash and cash equivalents Notes and accounts recelvable, less estimated doubtful amounts38,642 32 284 Inventories: $13,068 $8.453 3665 11,852 3359 3.124 6.229 5.271 $74963 $60.984 Crude oil, products and merchandise Materials and supplies Other current assets Total current assets In addition, the following note was provided in its 2014 10-K report: Inventories. Crude oil, products and merchandise inventories are carried at the lower of current market value or cost (generally determined under the last-in, first-out method-LIFO). Inventory costs include expenditures and other charges (including depreciation) directly and indirectly incurred in bringing the inventory to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cost. Inventories of materials and supplies are valued at cost or less. In 2014, 2013, and 2012, net income included gains of $292 million, $317 million, and $207 million, respectively, attributable to the combined effects of LIFO inventory accumulations and drawdowns. The aggregate replacement cost of inventories was estimated to exceed their LIFO carrying values by $27.6 billion and $21.3 billion at December 31, 2014, and 2013, respectively.

Explanation / Answer

(a)

Effect of change in method of valuation of closing stock = (27.6) millions

Pretax earnings = 73,229.40 million

(b)

Cost of goods sold = 266,534 million

Inventory Turnover Ratio = 319.60/266,534 = 0.001199 times

(c)

Inventory at the end of 2014 = 25,661 million

Inventory Turnover Ration = 25,661/289,618 = 0.088603 times

(d) BP p.l.c. has faster inventory turnover as compared to Exxon Mobil. It means stock of BP p.l.c is selling fast as compared to Exxon Mobil.

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