15. INVENTORIES Most inventories owned by Deere & Company and its US equipment s
ID: 2615395 • Letter: 1
Question
15. INVENTORIES Most inventories owned by Deere & Company and its US equipment subsidiaries are valued at cost, on the "last-in, first-out (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the "first-in, first-out" (FIFO) basis. Remaining inventories are generally valued at the lower of cost, on the "first-in, first-out" (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 59 percent of worldwide gross inventories at FIFO value on October 31, 2013 and 2012, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows: 2013 2012 Raw materials and supplies$4804 $3,760 932 1,548 11.108 9,748 17.844 15.056 Less adjustment to LIFO value (5.592) (5.468) $12 252 $9,588 Finished goods and parts Total FIFO value Inventories We note that not all of Deere's inventories are reported using the same inventory costing method (companies can use different inventory costing methods for different inventory pools). a. At what dollar amount are Deere's inventories reported on its 2013 balance sheet? s 0 million b. At what dollar amount would inventories have been reported on Deere's 2013 balance sheet had it used FIFO inventory costing? million C. What cumulative effect has the use of LIFO inventory costing had, as of year-end 2013, on its pretax income compared with the pretax income it would have reported had it used FIFO inventory costing? (Show an increase as a positive number and a decrease as a negative number.) millionExplanation / Answer
The questions are very specific in nature. Therefore, explanations have been included as and where possible.
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Part a)
The dollar amount at which Deere's inventories are reported on its 2013 balance sheet is $12,252.
Answer for Part a) is $12,252 million
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Part b)
The dollar amount at which Deere's inventories would have been reported on its 2013 balance sheet is if it had used FIFO inventory costing method is $17,844.
Answer for Part a) is $17,844 million
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Part c)
The pretax income has decreased by the following amount:
Decrease in Cumulative Pre-Tax Income = Value of Inventory After Adjustment for LIFO for 2013 - Value of Inventory Under FIFO for 2013 = 17,844 - 12,252 = -$5,592 million
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Part d)
The cumulative tax liability would have decreased by the amount calculated as below:
Decrease in Cumulative Tax Liability = Decrease in Cumulative Pre-Tax Income*Tax Rate = -5,592*35% = -$1,957.20 million
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Part e)
The effect on Deere's Pretax Income and Tax Liability is calculated as below:
Effect on Pretax Income for 2013 = LIFO Reserve for 2012 - LIFO Reserve for 2013 = 5,468 - 5,592 = -$124 million
Effect on Tax Liability for 2013 = Effect on Pretax Income for 2013*Tax Rate = -124*35% = -$43.40 million
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