10 Nov Write-Down of Obsolete InventoryAs a newly hired s
Write-Down of Obsolete InventoryAs a newly hired staff accountant, you are assigned the responsibility of physically countinginventory at the end of the year. The inventory count proceeds in a timely fashion. The inventoryis outdated, however. You suggest that the inventory cannot be sold for the cost at which it is carriedand that the inventory should be written down to a much lower level. The controller repliesthat experience has taught her how the market changes and she knows that the units in the warehousewill be more marketable again. The company plans to keep the goods until they are backin style.Required1. What effect will writing off the inventory have on the current year’s income?2. What effect does not writing off the inventory have on the year-end balance sheet?3. What factors should you consider in deciding whether to persist in your argument that theinventory should be written down?4. If you fail to write down the inventory, do outside readers of the statements have reliableinformation? Explain your answer.
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