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1. Tesco Company reported the following summarized annual data at the end of 2014: Sales revenue Cost of goods sold* Gross margin Operating expenses Income
1. Tesco Company reported the following summarized annual data at the end of 2014: Sales revenue Cost of goods sold* Gross margin Operating expenses Income before income taxes RM 1,000,000 600.000 400,000 270,000 RM 130.000 NMZ/AS *Based on an ending FIFO inventory of RM250,000. BAC 1614 2/8 Continued... FUNDAMENTALS OF FINANCIAL ACCOUNTING OCT 2016 QUESTION 1 (Cont'd) Part B The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been RM220,000. Required a) Restate the summary information on an average-cost basis. (3 marks) b) What effect, if any, would the proposed change have on Tesco's income tax expense, net income, and cash flows? (3 marks) c) If you were an owner of this business, what would your reaction be to this proposed change? (2 marks)
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