The gross profit method of inventory valuation is NOT suitable when
A) a portion of the inventory is destroyed.
B) there is a substantial increase in inventory during the year.
C) there is no beginning inventory because it is the first year of operation.
D) the gross profit percentage applicable to the goods in ending inventory is different from the percentage applicable to the goods sold during the period.

Question

Quizplus · Accepted Answer

The gross profit method assumes a consistent gross profit percentage throughout the year, and if the percentage varies between the goods sold and ending inventory, it will not yield an accurate inventory valuation. Therefore, option D is correct. Options A, B, and C are not correct because they do not directly relate to the suitability of the gross profit method for inventory valuation.

The Gross Profit Method of Inventory Valuation Is NOT Suitable