Was analyzing Cortina Holdings Ltd however I saw a negative “Changes in Inventories in Finished Goods” under its income statement. Understand that this is an extraordinary item, however, I’m not sure why is it considered an extraordinary item. Does this not happen often? Secondly, I know if there are decreases in extraordinary items, you should add it back in. However, I’m not too sure if I should & why I should this time round.
Hi Shu Fang,
You are right that that is an extraordinary item. This is a common practice in the watch company. For instance, if the company beginning year inventory is $1 million and the ending year inventory is $2 then the company will record a positive $1 for their changes in inventories in finished goods. Seeing a negative figures means that the ending year inventory is less than the beginning year. Therefore you should add back the figure.
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