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Provide explanation to the following questions Sitting on a meeting of analysts in your company you hear the following discussion of your colleagues: A: We

Provide explanation to the following questions

Sitting on a meeting of analysts in your company you hear the following discussion of your colleagues:

A: We have to compare two companies, where one uses FIFO and the other uses weighted average cost (WAC) for inventory management. I think this is a serious comparability distortion and we should make appropriate adjustments.

B: I agree, that we have a distortion but Im afraid we can not do much about it.

A: Based on the obligatory disclosures, we have two options: we can adjust the FIFO company to the WAC company or the other way round.

B: I would suggest that you leave the adjustment idea and just keep that in mind while interpreting the ratio values.

Which of the analysts turned out to be incompetent? Why?

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