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Hi John sir, how are you, thanks for all your kind replies. i always learn from you and praise you in my friends. John sir guide me about the following.
Q#1. when we find out acid test ratio or something else, we should take closing date inventory which is in balance sheet or opening balances and why?
Q#2. when we find out ARR. we take avg investment ,and to find out average investment we divide initial investment plus scrap value divided by 2, if there is no scrap value then should we divide only initial investment by 2?
Q#3. seasonal variation in additive model should be equal to 0, and for this we divide the difference over no of quarter and deduct these from average variations. should we always do like that? i mean to say why we dont add this difference in average seasonal variations.?
1. Ideally we should take the average inventory during the year (because the level at the end of the year might me unusually high or unusually low). However, in practice (and always in exams) we normally only have the year end Statement of financial position available, and we therefore use year-end (closing) balances.
2. Yes. If there is no scrap value, then the average investment over the life of the asset is the initial investment divided by 2.
3. Whether we add or subtract depends on whether the total is more or less than zero. All we are trying to do is adjust the variations so that they do end up totalling zero.
I hope that all makes sense 🙂
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