Financial Statement Analysis Cases
Case: Prab Robots, Inc.
Prab Robots, Inc., reported the...

Question

Financial Statement Analysis Cases
Case:  Prab Robots, Inc.
Prab Robots, Inc., reported the following information regarding 2011–2012 inventory.




Prab Robots, Inc.



 

2012


2011




Current   assets

 
 



Cash


$153,010


$538,489




Accounts   receivable, net of allowance for doubtful accounts of $46,000 in 2012 and   $160,000 in 2011


1,627,980


2,596,291




Inventories   (Note 2)


1,340,494


1,734,873




Other   current assets


123,388


90,592




Assets   of discontinued operations


—


32,815




Total   current assets


3,244,872


4,993,060




Instructions
(a) Why might Prab Robots, Inc., use two different methods for valuing inventory?
(b) Comment on why Prab Robots, Inc., might disclose how its LIFO inventories would be valued under FIFO.
(c) Why does the LIFO liquidation reduce operating costs?
(d) Comment on whether Prab would report more or less income if it had been on a FIFO basis for all its inventory.

Robert · Accepted Answer

Answer 
Instructions
(a) Why might Prab Robots, Inc. use two different methods for valuing inventory? 
Prab Robots Inc. has stated no absolute rules for valuing inventory; LIFO can be 
preferable due to the following reasons. 
1.   Lower TAX burden: - When we report inventory using LIFO method, profits are 
generally reduced and thus lowering the tax burden on the company. 
2. Matching Cost Concept:- In order to improve the matching cost with sales this 
method can be used because it helps to match the costs with recent revenue 
generated by sales of goods 
3. Suitable for companies dealing in products with large holding period and where a 
fairly amount of base stock is present such as refining, chemicals and glass. 
4. Lower profits:- Profits reported in income statement are generally lower while 
using LIFO methods  
5.

Financial Statement Analysis Cases Case: Prab Robots, Inc. Prab Robots, Inc., reported the following information regarding 2011–2012 inventory. Prab Robots, Inc. 2012 2011 Current assets Cash $153,010...

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Prab Robots, Inc.
	2012	2011
Current assets
Cash	$153,010	$538,489
Accounts receivable, net of allowance for doubtful accounts of $46,000 in 2012 and $160,000 in 2011	1,627,980	2,596,291
Inventories (Note 2)	1,340,494	1,734,873
Other current assets	123,388	90,592
Assets of discontinued operations	—	32,815
Total current assets	3,244,872	4,993,060