What accounting method does Deka Lash use to account for inventories, and how are they valued?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-out ("FIFO") method of accounting, and are valued at the lower of cost or market. Inventory is written down for estimated obsolescence and to lower of cost or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related allowance represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
According to the 2024 Deka Lash Franchise Disclosure Document, the company uses a standard costing system to account for inventories, which approximates the first-in-first-out (FIFO) method. This means that Deka Lash assumes the first units purchased are the first ones sold.
Inventories, which consist of merchandise purchased for resale, are valued at the lower of cost or market value. This is a standard accounting practice to ensure that the value of inventory is not overstated on the balance sheet. Deka Lash also writes down inventory for estimated obsolescence and to lower of cost or market value based on assumptions about future demand and market conditions.
If actual market conditions are less favorable than projected, additional inventory write-downs may be required. Once an inventory write-down is established, the original cost of the inventory less the related allowance represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped. This policy ensures that Deka Lash's inventory is accurately valued and reflects current market conditions.