Multi Department Store takes physical inventories at each of its 300 stores on various dates between August 1 and September 30 each year.The company's tax year ends on the Monday closest to January 31.The company's reduction in inventory due to breakage and theft after the last physical inventory in September 2019:
A)Cannot be determined until the physical inventory is actually taken and therefore breakage that occurs in December 2019 will not be deductible until the year ending in January 2020.
B)Must be delayed until the inventory has been taken as a result of the all-events test.
C)Can be estimated and deducted for the year ending in January 2020.
D)Can be estimated and deducted as of the end of the tax year, but only if the taxpayer uses the lower of cost or market inventory method.
E)None on the above.

Question

Quizplus · Accepted Answer

The company can estimate and deduct the reduction in inventory due to breakage and theft for the year ending in January 2020. This is because the company takes physical inventories at each of its 300 stores on various dates between August 1 and September 30 each year, so it has a good idea of what its inventory levels were at the end of September. Additionally, the company's tax year ends on the Monday closest to January 31, so it can estimate the reduction in inventory that occurred from October through December and deduct that amount in the current tax year.

Multi Department Store Takes Physical Inventories at Each of Its