Accounting Fundamentals | Assignment-1

Running head: ACCOUNTING FUNDAMENTALS
Accounting Fundamentals
Name of the Student
Name of the University
Author Note

1
ACCOUNTING FUNDAMENTALS
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................3
Answer to Question 4...................................................................................................................3
Part B............................................................................................................................................4

2
ACCOUNTING FUNDAMENTALS
Answer to Question 1
Fruits
5 $18 Revenue $90
LIFO FIFO
$4 $4
$4 $4
$8 $8
$8 $8
Profit $10 $50
In the above example, if the cost of goods sold was calculated on the basis of LIFO, then
the costs incurred by the company would be valued at $80 and the profits earned by the entity
would be lower at $10. However, the value of the inventory would be much higher at $8 per unit.
This means that the final goods would be valued at $80 in case there are 10 units with the
business. If the company uses FIFO method of valuation, the profits earned by it would be higher
at $50. However, the ending valuation of inventory would be much lower at $40 for 10 units
available with it. Hence, any profits which are earned by the entity would be off-set by the
change in the valuation of the ending inventory. Hence, constant switching between FIFO and
LIFO as methods of costing does not provide any additional benefits to the business. It is an
unnecessary burden to the business.
Answer to Question 2
The Du Pont analysis is a framework which analyses the underlying financial
performance of an entity popularised by the DuPont Corporation. Various aspects which are
included as a part of the calculation of a firm’s performance include Net Profit Margin, Asset
Turnover and Equity Multiplier. It takes into account all aspects of a business such as
profitability, efficiency and risk faced by the business. The equity multiplier is calculated with