When the Wall Street Journal reported that Chevron Corporation took a charge of $1.96 billion, it noted
Question:
When the Wall Street Journal reported that "Chevron Corporation took a charge of $1.96 billion", it noted that the charge was related to lower prices for crude oil and refined products. The article explained that the write down served "to reduce the carrying value of crude oil and refined products inventories to their market value."
INSTRUCTIONS:
a. What exception to the principles of financial accounting is being followed by Chevron when it writes down its inventories?
b. How would the write-down affect the financial statements?
c. How would the write-down affect the company's current ratio and its inventory turnover ratio (increase, decrease, or no effect)?
d. If crude oil prices rebounded the following year, explain how Chevron, which uses U.S. GAAP, would account for the rebound. What if Chevron used IFRS instead of U.S. GAAP?
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