On January 31, 2011, we elected to change our costing method forthe material component of raw materials, work in process, andfinished goods inventory to the lower of cost or market using thefirst-in first-out (âFIFOâ) method, from the lower of cost ormarket using the last-in first out (âLIFOâ) method. The labor andoverhead components of inventory have historically been valued on aFIFO basis. We believe that the FIFO method for the materialcomponent of inventory is preferable as it conforms the inventorycosting methods for all components of inventory into a singlecosting method and better reflects current acquisition costs ofthose inventories on our consolidated balance sheets. Additionally,presentation of inventory at FIFO aligns the financial reportingwith our borrowing base under our line of credit (see Note 3 forfurther discussion of the line of credit). Further, this changewill promote greater comparability with companies that have adoptedInternational Financial Reporting Standards, ⦠In accordance withFASB ASC Topic 250, Accounting Changes and ErrorCorrections, all prior periods presented have been adjusted toapply the new accounting method retrospectively.
The retroactive effect of the change in our inventory costingmethod, including the indirect effect of such change, increased theFebruary 1, 2008, opening retained earnings balance by $4.1million, and increased our inventory and retained earnings balancesby $8.5 million and $5.4 million as of January 31, 2009, by $6.9million and $4.3 million as of January 31, 2010, and by $7.6million and $4.7 million as of January 31, 2011, respectively. Inaddition the change in our inventory costing method, including theindirect effect of such change, increased (decreased) net income by$1.3, $(1.0) and $0.4 million for the years ending January 31,2009, 2010 and 2011, respectively.
Required:
Why does GAAP require Virco to retrospectively adjust prioryears' financial statements for this type of accounting change?
Assuming that the quantity of inventory remained stable duringthe previous two years, did the cost of Virco's inventory move upor down during that year?
Why does the change âpromote greater comparability withcompanies that have adopted International Financial ReportingStandardsâ?
On January 31, 2011, we elected to change our costing method forthe material component of raw materials, work in process, andfinished goods inventory to the lower of cost or market using thefirst-in first-out (âFIFOâ) method, from the lower of cost ormarket using the last-in first out (âLIFOâ) method. The labor andoverhead components of inventory have historically been valued on aFIFO basis. We believe that the FIFO method for the materialcomponent of inventory is preferable as it conforms the inventorycosting methods for all components of inventory into a singlecosting method and better reflects current acquisition costs ofthose inventories on our consolidated balance sheets. Additionally,presentation of inventory at FIFO aligns the financial reportingwith our borrowing base under our line of credit (see Note 3 forfurther discussion of the line of credit). Further, this changewill promote greater comparability with companies that have adoptedInternational Financial Reporting Standards, ⦠In accordance withFASB ASC Topic 250, Accounting Changes and ErrorCorrections, all prior periods presented have been adjusted toapply the new accounting method retrospectively.
The retroactive effect of the change in our inventory costingmethod, including the indirect effect of such change, increased theFebruary 1, 2008, opening retained earnings balance by $4.1million, and increased our inventory and retained earnings balancesby $8.5 million and $5.4 million as of January 31, 2009, by $6.9million and $4.3 million as of January 31, 2010, and by $7.6million and $4.7 million as of January 31, 2011, respectively. Inaddition the change in our inventory costing method, including theindirect effect of such change, increased (decreased) net income by$1.3, $(1.0) and $0.4 million for the years ending January 31,2009, 2010 and 2011, respectively.
Required:
Why does GAAP require Virco to retrospectively adjust prioryears' financial statements for this type of accounting change?
Assuming that the quantity of inventory remained stable duringthe previous two years, did the cost of Virco's inventory move upor down during that year?
Why does the change âpromote greater comparability withcompanies that have adopted International Financial ReportingStandardsâ?
