Analyzing Effects of LIFO on Inventory Turnover Ratios

The current assets of Exxon Mobil Corporation follow:

$ millions Year $3$ Year $2$

Current assets

Cash and cash equivalents $$13,068$ $$8,453$

Notes and accounts receivable, less estimated doubtful amounts $38,64232,284$

Inventories:

Crude oil, products and merchandise $12,66510,852$

Materials and supplies $3,3593,124$

Other current assets $6,2295,271$

Total current assets $$73,963$ $$59,984$

In addition, the following note was provided in its Year $310-$K report:

Inventories. Crude oil, products and merchandise inventories are carried at the lower of current market value or cost $($generally determined under the last$-$in$,$ first$-$out method$$LIFO$).$ Inventory costs include expenditures and other charges $($including depreciation$)$ directly and indirectly incurred in bringing the inventory to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cost. Inventories of materials and supplies are valued at cost or less.

In Year $3,$ Year $2,$ and Year $1,$ net income included gains of $$292$ million, $$317$ million, and $$207$ million, respectively, attributable to the combined effects of LIFO inventory accumulations and drawdowns. The aggregate replacement cost of inventories was estimated to exceed their LIFO carrying values by $$26\mathrm{.}6$ billion and $$21\mathrm{.}3$ billion at December $31,$ Year $3$ and Year $2$ respectively.

Required:

a$.$ Exxon Mobil reported pretax earnings of $$73,257$ million in Year $3.$ What amount of pretax earnings would have been reported by the company if inventory had been reported using the FIFO costing method?

$Answer

million

b$.$ Exxon Mobil reported cost of goods sold of $$266,534$ million in Year $3.$ Compute its inventory turnover ratio for Year $3$ using total inventories.

$($Round your answer to one decimal place.$)$

Answer

c$.$ BP$,$ p$.$l$.$c$.($BP$)$ reports its financial information using IFRS. For fiscal Year $3,$ BP reported cost of goods sold of $$288,618$ million, beginning inventory of $$26,218$ million and ending inventory of $$25,661$ million. Compute BP$\text{'}$s inventory turnover ratio for fiscal Year $3.$

$($Round your answer to one decimal place.$)$

Answer

d$.$ Compare your answers in parts b and c$.$ BP can$$t use LIFO to report under IFRS, so$,$ revise your calculations in such a way as to find out which company has faster inventory turnover. $($Hint: Calculate Exxon Mobil's inventory turnover ratio as if Exxon Mobil used the FIFO costing method.$)($Round your answer to one decimal place.$)$

Answer