If year-end inventory is reduced from cost to a lower net realizable value, whic

Question

If year-end inventory is reduced from cost to a lower net realizable value, which of the following accurately depicts the results? 0 A. 0 B. ° C. O D. Cost of goods sold is increased and beginning inventory of the next period is decreased by the same amount. Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount. Year-end inventory is reduced and cost of goods sold is reduced by the same amount The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.

Explanation / Answer

Solution;-

Answer mus be A:- Cost of Goods Solds Increase and the begining inventory of the next period will increase by the same amount

Reason:- Cost Of Goods Sold = Opening Inventory + Purchase + Direct Expenses - Closing Invesntory

As per the above formula,closing investory is a minus item hence so when minus item reduced, the resultamt figure will increase. And as closing invesntory will become opeing of the next period, so opening invn of next period will decline by the same amount.

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