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ABC Company recently hired an internee in its accounts section, Mr. Rashed. Rashed has found out the following information with respect to cost and market

ABC Company recently hired an internee in its accounts section, Mr. Rashed. Rashed has found out the following information with respect to cost and market value of ending inventory:

Inventory items

Cost (Tk.)

Market value (Tk.)

A

40,000

42,000

B

33,100

31,000

C

38,000

40,000

D

28,900

31,000

He determined the value of inventory as Tk. 1,40,000 (At cost price). He has least accounting knowledge in the manufacturing sector. He has also set out the following impacts of ending inventory errors on income statement and balance sheet items:

Ending Inventory errors

COGS

Net income

Assets

Owners equity

Liability

Overstated

Overstated

Understated

Overstated

Understated

None

Understated

Understated

Overstated

Understated

Overstated

None

He also thinks that any error in ending inventory in the current period will have the same effect on net income in the next period. He applied LIFO method of allocating the cost of ending inventory.

a) Redo the inventory valuation following LCM principle.

b) Identify the misconceptions and errors made by Rashed.

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