Abercrombie & Fitch Co. is a specialty retail company operating over 1,000 store

Question

Abercrombie & Fitch Co. is a specialty retail company operating over 1,000 stores globally. The following disclosure note was included in recent financial statements: 4. Change in Accounting Principle The Company elected to change its method of accounting for inventory from the retail method to the weighted average cost method effective February 2, 2013. In accordance with generally accepted accounting principles, all periods have been retroactively adjusted to reflect the period-specific effects of the change to the weighted average cost method. The Company believes that accounting under the weighted average cost method is preferable as it better aligns with the Company's focus on realized selling margin and improves the comparability of the Company's financial results with those of its competitors. Additionally, it will improve the matching of cost of goods sold with the related net sales and reflect the acquisition cost of inventory outstanding at each balance sheet date. The cumulative adjustment as of January 30, 2010, was an increase in its inventory of $73.6 million and an increase in retained earnings of $47.3 million. Required: Why does GAAP require Abercrombie to retroactively adjust all prior periods for this type of accounting change?

Explanation / Answer

GAAP requires Abercrombie to retroactively adjust all prior periods for this type of accounting change so that nature and amount of prior period items can be separately disclosed in the statement of profit and loss in a manner that their impact on current profit or loss can be perceived.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.