Financial Accounting Exxon Shell Case Essay

Objective Understanding the effect of strain rating assumptions on financial statements.Assignment summary You are taking the intention of a security analyst who recently started following the Oil and bobble industry. The analyst has a childbed to draw a comparison of several(prenominal) financial indicators for two industry leaders Exxon Mobil and Royal Dutch Shell, establish on their income statements and balance sheets (attached at the end of this document) as well as the development from the notes to the financial statements summarized below. The two companies appear to be quite similar and are similar in size based on fundamental assets. A private investor notes, however, that some financial ratios appear to be different. Your task is to guide an investor through the basic steps that will help them empathise the effect of inventory valuation assumptions on the financial ratios.The following information is based on Exxons and Shells 2011 Annual Reports.Exxon Mobil primin g information. Exxon Mobil Corporation was incorporated in the State of New Jersey in 1882. Divisions and affiliated companies of ExxonMobil operate or market products in the United States and almost other countries of the world. Their principal business is energy, involving exploration for, and production of, crude rock oil and raw(a) gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas, and petroleum products.NOTES TO FINANCIAL STATEMENTSInventories. Crude oil, products, and merchandise inventories are carried at the move of current market value or cost ( commonly determined on a put down floor the last-in, first-out method last in first out). Inventory costs include expenditures and other charges (including depreciation) directly and indirectly incurred in bringing the inventory to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cos t. Inventories of materials and supplies are valued at cost or less (i.e., lower of cost or market).The aggregate replacement cost of inventories was estimated to exceed their LIFO carrying values by $25.6 billion and $21.3 billion at December 31, 2011, and 2010, separately (Convert LIFO to FIFO).