Which of the following is a red flag associated with improper asset valuation?
Which of the following is a red flag associated with improper asset valuation?
An unusual increase in gross margin can be a red flag for improper asset valuation. This may occur if the ending inventory is overvalued, which reduces cost of goods sold and inflates gross margin.
Appreciate if someone can explain the answer.
improper valuation of ending inventory by increasing the balance at the end of period affect (increase) the amount of gross margin. Sales - Cost of goods sold = Gross Margin Cost of goods sold = (Beginning balance of inventory + Purchases) - Ending Inventory
(Sales - Cost of goods sold) = Gross Profit (Sales - Cost of goods sold) / Sales = Gross Margin
Sorry (Sales - Cost of goods sold) = Gross Margin (Sales - Cost of goods sold) / Sales = Gross Profit Margin