The 2015 Form 10-K for Gap Inc. includes the following information in the note that summarizes its

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The 2015 Form 10-K for Gap Inc. includes the following information in the note that summarizes its accounting policies:

Merchandise Inventory

We value inventory at the lower of cost or market, with cost determined using the weighted average cost method. We record an adjustment when future estimated selling price is less than cost. We review our inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes or colors) and use promotions and markdowns to clear merchandise. In addition, we estimate and accrue shortage for the period between the last physical count and the balance sheet date.

Required

1. What inventory costing method does Gap Inc. use? Explain why you think Gap uses this method.

2. Gap Inc. values its inventory at the lower of cost or market. How does the company define market? What factors does it take into account in deciding whether to write down its inventory?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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