Question A1

As an analyst, you need to compare AZN, a US-based company, with CMB, an Australian company. Both are merchandising firms. AZN follows GAAP standards and values inventory using the LIFO method. CMB follows IFRS, and its inventory is valued using the FIFO method. In compliance with the standards, AZN discloses differences in inventory values calculated using LIFO and FIFO under the notes. Answer parts a) to c) in point form.

1. What adjustments do you need to make for comparison purposes? (max words 200). (0.5*4=2 marks)

2. In addition to the difference in closing inventory balances under FIFO and LIFO due to the inflationary situation, AZN managed to sell fewer units than the units purchased in the current year. What would be the impact of this in future? (max words 100).

(1*2=2 marks)

3. What are the potential reasons for LIFO liquidation? (max words 150).

(1*2=2 marks)