Abstract

The case study covers the dilemma of P Nishanth Kumar Reddy (Nishanth), founder of Reddy Distributors, a snack distributor, who took over the distributorship of Morning Glory Private Limited (MGPL) in 2015. While Nishanth was running his business successfully, he was facing a threat to his revenue from growing competition, which had prompted him to decide to go in for advertising, free delivery, and inventory reduction. Nishanth asked his intern, Thiyagarajan, to prepare detailed questions on inventory management and valuation so they could discuss the consequences of changes and forecasts in the upcoming meeting with the accountant. The case helps students understand inventory valuation concepts with the help of scenarios covering inventory definition and types, periodic and perpetual systems, First in First Out (FIFO) and Weighted Average Cost (WAC) methods, cost of goods sold, closing stock, profit, and the impact of valuation on tax liability and financial statements.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To interpret the various concepts related to inventory and its valuation
• To estimate the cost of goods sold, closing stock, and profit under the FIFO and WAC methods
• To analyze the impact of inventory valuation on profit, tax liability, and financial statements

Keywords

First in First Out; FIFO; Weighted Average Cost methods; WAC; Cost of goods sold; Closing stock, Impact of closing stock valuation on tax liability, Impact of closing stock valuation financial statements; Inventory management