ECONOMICS

Detailed explanation-1: -Accounting for inventories is an important decision that a firm must make, and the way inventories are accounted for will impact financial statements and figures. Companies would likely choose to use the highest in, first out (HIFO) inventory method if they wanted to decrease their taxable income for a period of time.

Detailed explanation-2: -First In, First Out, commonly known as FIFO, is an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first. For tax purposes, FIFO assumes that assets with the oldest costs are included in the income statement’s cost of goods sold (COGS).

Detailed explanation-3: -The FIFO method produces the most meaningful inventory amount for the statement of financial position because the units are costed at the most recent purchase prices. This method is most likely to approximate actual physical flow because the oldest goods are usually sold first to minimize spoilage and obsolescence.

Detailed explanation-4: -Highest-in First-out is typically used by corporations looking to minimize their taxable earnings for a particular accounting period. HIFO allows for the costliest inventory to be sold first, regardless of when it was purchased, thereby driving up the value of the cost of goods sold, and lowering taxable earnings.

Detailed explanation-5: -What is the FIFO method? FIFO stands for first in, first out, an easy-to-understand inventory valuation method that assumes that goods purchased or produced first are sold first. In theory, this means the oldest inventory gets shipped out to customers before newer inventory.