Question
Tory Business has been using weighted average method to value its inventory. In the last few months, business has been very slow and the CEO
Tory Business has been using weighted average method to value its inventory. In the last few months, business has been very slow and the CEO is desperate for additional funding from the banks. Examining the draft financial statements prepared by you, he was concerned the banks might not approve the loans. If so, he would have no choice but to end the business. The CEO re-calculated the figures himself using FIFO method and found that it would enhance the chances of securing a loan. He thus asked you to change the inventory method to FIFO when applying for bank loans. Explain whether you agree or disagree with the CEOs suggestion to change the inventory costing method.
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