1. All three purchase discounts method nets the same net income at the end. If the cost is deducted from the cost of purchased goods, the amount of purchases is lower and the cost of good sold is lower which translates to a higher net income. If the purchase discounts are reported as other income net income will be higher. When the purchase discounts not taken are reported as an expense the net income will be higher as well. The reasoning behind the argument as to the preferable method lies in the valuation of inventory and cost of goods sold. If the company deducts the costs of purchased goods from purchases the cost of goods sold figure is lower. If the purchase discounts is reported as other income or is expensed the cost of goods sold and the inventory accounts are not affected, but do remain higher.
2. Using the perpetual method of inventory valuation, having identified the specific inventory spoiled, the amount should be deducted from inventory and added to cost of goods sold. Even though the goods were not sold, this is considered a cost of the sales. The entry would be to debit cost of goods sold and to credit merchandise inventory. Another way would be to create a contra inventory account where the spoilage would be recorded during the year at each count and closed to inventory at year end. This would still be debited to cost of goods sold at each period inventory has been counted to reflect to up to date cost of sales.
3. LIFO valuation can be permitted and justified in times of high inflation. As prices increase, businesses have to replace inventory being sold. LIFO, in this case, matches current costs against current revenues. As the higher priced inventory is sold, the higher the revenue realized on that sale, but also the higher the cos ...