E does it matter that bp is using fifo and exxonmobil

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E . Does it matter that BP is using FIFO and ExxonMobil is using LIFO for inventory? The LIFO reserve decreased by $15.4 billion dollars in 2008. Because the LIFO reserve dropped, reported income using LIFO will exceed the amount of income reported using FIFO. The user would need to determine if the change in the LIFO reserve was caused by falling prices or merely a reduction in inventory levels. This can have a significant impact on how you might interpret the results of operations for ExxonMobil. 11 - 7
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PROBLEM 11-2 IFRS Income Statement and Terminology Differences LO2 A. On the income statement, the first two lines in Unilever’s income statement are Turnover and then Operating profit. What does the term ‘Turnover’ mean? Which costs are typically reported between ‘Turnover’ and operating profit? The term ‘turnover’ is a term that is used internationally to indicate revenues or sales. In the financial statement for Unilever, the income statement simply listed ‘turnover’ and then operating profit on the next line. If you examine the footnotes, you would see that expenses not listed as a line item on the income statement (items between sales and operating margin) include cost of sales, distribution and selling costs, and administration expenses. B. How useful is Unilever’s income statement presentation considering that this information about expenses is disclosed in footnote 3 rather than being reported on the face of the income statement? The answer to this question depends on whether you believe that important line items should be disclosed on the face of the income statement versus disclosing the detail in a footnote to the financial statements. If companies only delivered summary financial statements to the users, this detail (the amount of off-balance sheet payments) often might not be disclosed. Information concerning the change in gross margin provides useful information to users about the growth in inventory costs relative to the change in revenues. PROBLEM 11-3 Illustrated Financial Statements No solution is provided for this problem. 11 - 8
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Problem 11-4 Financial Statement Presentation BUSINESS 2010 2011 Operating assets and liabilities Short-term Accounts Receivable 97,200 90,600 Allowance for doubtful accounts (14,400) (12,600) Inventory 518,400 562,800 Prepaid insurance 24,600 21,600 Short-term assets 625,800 662,400 Accounts Payable - trade (195,600) (178,800 ) Accrued interest payable (11,400) (16,800) Short-term liabilities (207,000) (195,600 ) Long-term Plant & equipment 735,600 780,000 Accumulated depreciation (120,000) (126,000 ) Net long-term assets 615,600 654,000 Net operating assets 1,034,400 1,120,80 0 Investing assets Short-term Investment (trading) 16,800 20,400 Long-term Investments (equity method) 16,800 18,000 Net investing assets 33,600 38,400 Net business assets 1,068,000 1,159,20 0 FINANCING Financing assets Short-term Cash 49,200 40,800 Financing liabilities Short-term Dividend payable (24,000) (19,200) 11 - 9
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Short-term loan payable (66,000) (84,000) Short-term liabilities (90,000) (103,200 ) Long-term Bond payable, net of discount (120,000) (174,000 ) Net financing liabilities (160,800) (236,40 0) 11 - 10
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Problem 11-4 (continued) INCOME TAXES Short-term Income taxes payable (19,200) (13,200) Long-term Deferred tax liability (66,000) (45,600) Net income tax liability (85,200) (58,800 ) NET ASSETS 822,000 864,000 EQUITY Common Stock & paid in capital 264,000 264,000 Retained Earnings 582,000 606,000 Less: Treasury stock (24,000) (6,000) TOTAL EQUITY 822,000 864,000 Accounts payable 195,600 178,800
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