CMA Study Group

Calculating Days in Inventory

  • 1.  Calculating Days in Inventory

    Posted 14 days ago
    Hello,

    I am currently studying for part 2 using the Becker review course. Their study material says you can use either ending inventory or average inventory in the numerator, but that average inventory is more accurate. In the multiple choice questions, they have an answer that uses ending and an answer that uses average, and the correct solution uses ending. If either is correct, why have both as an option? Does anyone know if the exam has both methods of calculating as an option, and if so, which do they prefer that you use?

    Thanks,

    Ivee Maughan


  • 2.  RE: Calculating Days in Inventory

    Posted 14 days ago

    Hey Ivee,

    Usually ending balance is considered when the business is using the natural business year instead of the calendar year or it can be used when enough information is not available for the opening balance. Although if we use closing balance, in theory this approach is not logical and hence we prefer average balance but closing balance can be used in certain situations. 



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    Jasleen Raheja
    Pune
    India
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  • 3.  RE: Calculating Days in Inventory

    Posted 14 days ago
    Hello Ivee,

    Preferred formula is using average inventory for computation purposes. COGS is an Income statement item and it is computed for a year where as balance sheet is prepared for a given day. It would be vague to compare a periodic statement with a statement that shows financial position on a given day. So, taking average of balance sheet item makes more sense.

    Thank you,
    Shadab