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Asset Valuation

Asset Valuation
Team A's car dealership is a profitable venture. The lot of land is located in a prime location, and it was fortunate to obtain a sizeable parcel, which is perfect for the large fleet of cars it keeps on hand. The dealership sells new and used cars and also repairs cars and sells parts. There are three main parts to the business; the car dealership, the repair shop, and the body shop, each with an inventory of items and assets that need to be accounted for regularly.
Inventory Policies

With price changes in similar products occurring throughout the year, it becomes difficult to determine the value of goods. How should these values be determined? A company must choose the most applicable cost flow assumption to its specific inventory. These cost flow assumptions include:
1. First in, first out (FIFO). FIFO is the assumption that the first goods bought
are the first goods that will be purchased by the customer. This means that the goods that are the oldest will be the first to be sold.
FIFO applies to a few types of inventories in a car dealership, like the food and beverages the dealership might offer to potential customers, any vending machines available for employees, and any fluids or parts that might have expiration dates in the mechanic shop.
2. Last in, first out (LIFO). LIFO assumes that the last goods purchased will be
the first goods purchased by the customer. This means that goods purchased some time ago remain in inventory. In the car sales industry, parts like rims for tires – which can be extremely trendy today – would qualify for the LIFO cost flow assumption.
3. Average Cost. This method assumes that customers, in general, purchase a
variety of goods – some newer and some older. Because of this, the value of the inventory is an average of the various prices paid by the company. Office supplies qualify for the average cost method. For the most part, employees have no preference about which notebook or post-it pad to...