Question

The gross profit method of inventory valuation is not valid when a. there is substantial increase in the quantity of inventory during the year. b. there is substantial increase in the cost of inventory during the year. c. the gross margin percentage changes significantly during the year. d. all ending inventory is destroyed by fire before it can be counted.

Answer 1

Answer:

The gross profit method of inventory valuation is not valid when

c. the gross margin percentage changes significantly during the year.

Explanation:

Gross Profit Method:

It is such method that is used to determine the value of ending inventory in a specific period.

• The option a, b and d are valid as this method is used when there is substantial increase in the quantity of inventory or in the cost of the inventory during the year. Moreover, it is also used to calculate the amount of ending inventory that is effected by a disaster such as fire, theft etc.
• The option c is not valid because it is not used when the gross margin percentage changes significantly during the year as gross profit method is only used to determine the amount of an ending inventory.