Reference no: EM131752452

News article provided by Teresa Rivas concluded that Gap Inc. had a disappointing quarter that saw one of its biggest lows in many years. Investors were dissatisfied with the New Year's earnings yet Gap 51 cents a share in the quarter. Moreover, this was in-line with predictions and goals. Gap however, said it expects to earn a number in accordance with $1.95 and $2.05 a share with an overall forecast of $4.43 billion, above the $4.39 of $4.43 billion to $4.4 billion earlier in the month. The efforts that are being made to rectify this low earning will promote a better performance in the future and allow brand execution to have a bigger impact on the company's agenda moving forward.

The implications of this for investor and other stakeholders are it helps these groups of folks get an accurate idea of the value of the company's assets and future success or not success depending if the positive or negative trend continues. Moreover, the impairment of Gap's inability to have a better quarter do to poor or miss leadership of assets and cash flow. In addition, the net profit, too, is adversely affected in the year the charge is made. However, such a charge may be extraordinary or onetime in nature and may or may not be relevant for the company's future financials.

Questions:

You are the junior accountant of Gap. The chain is opening a new retail store and asks you "Which inventory costing method should we use?"

What is your response? Include a comparison of the tax effect, balance sheet effect, and income statement effect for FIFO versus LIFO.