Hi All,
I am trying to prepare for an upcoming interview and want to confirm my understanding of an inventory write down on the 3 financial statements.
Just as an example: What happens to the three statements if inventory of $100 is written down to 50% with a tax rate of 40%?
My current understanding/answer is:
I/S: Expense goes up by $50 (Inventory Write Off), EBIT goes down by $50 and NI goes down by $30 (which is equal to $50 * (1-.4))
CFS: NI is down by $30 but add back in the non-cash expense of $50 so cash increases by $20
BS: Inventory goes down by $50, Cash goes up by $20 and RE goes down by $30 (reflecting decrease in NI)
Is this correct? Thanks in advance for all help and insight.
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