The Multi Department store takes physical inventories at each of its 300 stores on various dates between August 1 and September 30th each year.The company's tax year ends on the Monday closest to January 31st.The company's reduction in inventory due to breakage and theft after the last physical inventory in September 2016:
A)Cannot be determined until the physical inventory is actually taken and therefore breakage that occurs in December 2016 will not be deductible until the year ending in January 2017.
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 2017.
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 the reduction in inventory due to breakage and theft and deduct it for the year ending in January 2017. This is because the all-events test has been met as the event has occurred (breakage and theft) and the amount can be reasonably estimated. It is not necessary to wait for the physical inventory to be taken.

The Multi Department Store Takes Physical Inventories at Each of Its