The working capital is calculated as current assets less the current liabilities.
Working capital = current assets – current liabilities
Working capital = 2,002.8 – 734.2
Working capital = 1,268.6
NB = all amounts are in millions
LIFO reserve account
The LIFO reserve account is mainly used to bridge the gap between last in first out (LIFO) and first in first out (FIFO) costs when the organization uses FIFO method in the process of tracking inventory, and it mainly reports using the LIFO method when preparing the financial statements. Moreover, the inventory difference of the organisation relates to the difference in the LIFO reserve account. The credit balance of the LIFO reserve account mainly reports the difference in the last in first out against the first in first out. The change in the balance in the year 2008 represents that year’s inflation costs. Additionally, the change in the balance of the LIFO reserve account also increases of the year's cost of goods sold. It at the same to reduces that organisations taxable income and the profits.
Importantly, the disclosure of the LIFO reserve account allows the organisation to compare the profits and the ration of the firm using LIFO with the revenues and the ratios of the business using FIFO. This is important as the firm will be able to determine whether it is making any profits at the time and the areas that need improvement form the organisation to achieve its intended purpose. The balance is as a result of the changes of the two accounting policies the last in first out and last in first out. This is because the inventory might have been at a lower cost than the already existing merchandise in the firm.
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