Explanation

When a manufacturing company writes down inventory to its net realizable value:

1. Effect on Cost of Sales: A write-down increases cost of sales in the period when it occurs, not decreases it. The write-down amount is recognized as an expense (cost of sales), so cost of sales would be higher than if the write-down had not occurred.

2. Effect on Current Ratio: The current ratio (Current Assets / Current Liabilities) decreases because:

   • Inventory (a current asset) is reduced by the write-down amount
   • Current liabilities remain unchanged
   • Therefore, the numerator decreases while denominator stays the same, resulting in a lower current ratio

3. Effect on Inventory Turnover: Inventory turnover (Cost of Sales / Average Inventory) would likely increase because:

   • Cost of sales increases due to the write-down
   • Average inventory decreases due to the write-down
   • Both changes work to increase the turnover ratio

Key Accounting Treatment:

• The write-down reduces inventory on the balance sheet
• The reduction is recognized as an expense in cost of sales on the income statement
• This reduces both net income and inventory value

Therefore, the correct answer is B - a lower current ratio than if the write-down had not occurred.