Question

Why is inventory valuation important to a company? Does management have the ability to switch valuation methods when they perceive an advantage for the company will transpire? Are you aware of any companies that have fraudently reported wrong inventory numbers? What would motivate a company or bookkeeper to report misleading inventory numbers? Why?

Answer 1

(1) It helps to company to know the actual monetary value of its inventory.

(2) Yes

(3) No, I am not aware.

(4) To promote ethical standards.

Explanation:Inventory valuation is a term used to describe the process used to determine the actual amount or monetary worth of a company's inventory.

Inventory management can be done through LIFO,FIFO OR AVERAGE COST.

A company is at liberty to make choice of which of the valuation methods it wants to adopt for its inventories.

A company or a book keeper can be motivated by the ethical standards which are in place and are known to be accepted through out the industry.