24 Jul WHY IS KROGER DISCLOSING THE REPLACEMENT COST OF ITS LIFO INVENTORY?
Income statement and balance sheet of The Kroger Company one of the worlds largest retailers appe Show more Income statement and balance sheet of The Kroger Company one of the worlds largest retailers appears below: Balance Sheet January 29 2011 January 30 2010 Current assts: Inventories (1/29/2011)4966 mill; (1/30/2010)4935 mill Income Statement: Net Sales (1/29/2011)82189 mill; (1/30/2010) 76733 mill Cost of goods sold (1/29/2011) 63927 mill; (1/30/2010) 58958 mill Gross Profit (1/29/2011) 18262 mill; (1/30/2010) 17777 mill The significant accounting policies note disclosure contained the following: Inventories are stated at the lower of cost (principally on a LIFO basis) or market. In total approximately 97% of inventories were valued using the LIFO method. Cost for the balance of the inventories including substantially all fuel inventories was determined using the FIFO method. Replacement cost was higher than carrying amount by $827 million at January 29 2011 and $770 million at January 30 2010. Required: 1. Why is Kroger disclosing the replacement cost of its LIFO inventory? 2. Assuming that year-end replacement cost figures approximate FIFO inventory values estimate what the beginning and end inventory balances for the fiscal year ended 1/29/2011 would have been if Kroger had used FIFO for all its inventories. 3. Estimate the effect on cost of goods sold (that is would it have been greater or less and by how much?) for the fiscal year ened 1/29/2011 if Kroger had used FIFO for all of its inventories. Show less
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