Question 5 1. You are auditing a business, May Company for 1999 and 2000. You discover that May Company has adopted the following treatment of certain items in the accounts. —In 1999, inventory valuation method was FIFO, but in 2000 LIFO method has been used, as the prices is rising. —Insurance expense from 1 July 2000 to 1 July 2001 has been absolutely recorded in the accounts for expenses incurred. Required: State the fundamental accounting concept which governs each of the above two treatments: (a)inventory valuation method (b)insurance expense and discuss the effect which each treatment will have on the following financial ratios: (i)net profit margin (ii)return on capital employed (iii)current ratio (iv)quick (acid test)ratio