Inventory turnover ratios whereas, problem, average, one

zbird2134

Hi there,
For inventory turnover ratios, I seem to find that there is a discrepancy in the book. Sometimes they refer to it as the cogs/ ending inventory whereas other times, it's cogs/ average inventory.

How do we know which one to use for each problem?

Kapie

was this meant for the Level 1 Forum ?

or is this stuff really in Level 2 yet again ?

hassan

It really is Level 2 stuff, and given that there is an entire study session devoted to accounting for inventories, cost assumptions, and those cost assumptions affects on ratios in accounting it is material.
My understanding is the "CFAI approved method" for activity ratios is to use the average balance sheet values in the denominator when sufficient information is provided from the item set; and use the most recent single period otherwise. My experience was that for these particular kinds of problems the MC answers were materially different from another that calculating either way would have yielded a close enough answer.
It's a beautiful War.

kickthatcfa

Unless stated in the question use the avg.

Alway remember RTFQ, read the fing ?

ppls

Yeah I just started book 2. LIFO on crack. I hate it.

maryli

Use the average value unless asked otherwise or sufficient information is not given in the item set.