GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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FIFO
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LIFO
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Simple average method
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Weighted average method
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Detailed explanation-1: -When prices are rising, you prefer LIFO because it gives you the highest cost of goods sold and the lowest taxable income. First-in, first-out, or FIFO, applies the earliest costs first. In rising markets, FIFO yields the lowest cost of goods sold and the highest taxable income.
Detailed explanation-2: -If prices are rising through the year, using the recent inventory LIFO method will result in a higher COGS and lower ending inventory value than with the FIFO method. Using the LIFO accounting method here would yield lower profits and lower taxable income.
Detailed explanation-3: -In times of rising prices, LIFO (especially LIFO in a periodic system) produces the lowest ending inventory value, the highest cost of goods sold, and the lowest net income.