CRISIL also believes that the company's cash accruals in 2010-11 will improve, driven by the expected inventory profits
due to the increase in cotton prices.
Rising prices allow most retailers to pad margins and add to inventory profits
The parent extends the "partial" equity method and adjusts its accounts for intercompany transactions such as intercompany inventory profits
that are unrealized at a financial statement date.
As prices change, companies that value inventory withdrawals at original acquisition (historical) costs may realize inventory profits
Accounting corrections are used to remove inventory profits
(line 2) and put depreciation on the replacement-cost basis (line 3).
Management says that the declines in the segment's operating profits before the special charges largely reflected the slowdown in drug price increases, which reduced the company's ability to benefit from inventory profits
Companies that use LIFO to minimize the taxation of illusory inventory profits
should never forget that LIFO can turn around and bite them when inventory levels decline.
Additionally, inventory profits
(associated with price increases) should decline throughout the second half of 2006 and all of 2007.
The accounting theory supporting LIFO is the belief that it provides a better matching of current costs with current revenues, thereby eliminating inventory profits
from the taxpayer's earnings.
NASDAQ:EILL) announced that during the course of their audit for the fiscal year ended December 31,1998 subsequent to year end, the Company determined that an error related to the elimination of inter-company inventory profits
affected operating results during the three previous quarters in fiscal 1998.
Some inventory profits
may be excluded from this provision.
Although it is difficult to quantify, we believe this resulted in inventory profits
that enhanced operating income by several million dollars in 1995 and inventory losses of a comparable amount in 1996.