Grace Company Ltd uses the weighted average-cost method for inventory costing under periodic system. The company is having a very good year. In an effort to reduce income in the current year, the accountant took the unusual step of recommending to the purchasing department to make a large purchase of inventory at year-end. The price of the item to be purchased has nearly tripled during the year, and the item represents a major portion of inventory value.

Required:

In your own words; answer the followings:

(a) If the accountant recommends the purchase, what are the consequences?

(b) If Grace Company was using the FIFO method of inventory costing, what are the consequences?