Reference no: EM132626440

Company BETA prepares its financial statements using the international financial reporting standards. The Chief Executive Officer of Company BETA is currently deciding which inventory method to use: weighted average costs (WA) or First-In-First-Out (FIFO). Assume that Company BETA expects an upward trend in inventory prices.

Company BETA considers the following independent scenarios before making a choice:-

i) For financial accounting purposes, Company BETA would like to select the inventory method that maximizes net profit margin.

ii) Company BETA would like to adopt the inventory method that maximizes inventory divided by total liabilities.

iii) About 80% of BETA's inventories are perishable products such as fruits and vegetables. Company BETA wishes to choose an inventory method that reflects the likely physical movement of the its inventories.

Problem 1: Assume each of the issues raised above is independent. The Chief Executive Officer of Company BETA has asked you to recommend and explain which inventory method should be selected under each independent scenario.