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Postby pooja923 » Fri May 13, 2016 6:21 am

Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt’s reported 2007:
A. current ratio was too high.
B. gross margin was too high.
C. inventory turnover was too high.

What is meant by the question and what will be the answer and why?


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Postby edupristine » Fri May 13, 2016 8:25 am

Hi Pooja

The correct answer is C. Inventory turnover was too high.
The write down reduced the value of inventory and increased cost of goods sold in 2007. The higher numerator and lower denominator mean that inventory turnover ratio as reported was too high.

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