GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which method of inventory valuation helps in reducing the burden of income tax in times of rising prices?
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Average cost
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First-in-first-out
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Last-in-first-out
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Base stock method
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Explanation:
Detailed explanation-1: -There are tax benefits associated with employing LIFO, unlike FIFO. Higher COGS and a reduced balance of leftover inventory are the results of LIFO during periods of inflation. Taxes will be paid less by firms if COGS are higher and earnings are lower.
Detailed explanation-2: -When prices are rising, you prefer LIFO because it gives you the highest cost of goods sold and the lowest taxable income.
Detailed explanation-3: -In rising prices, FIFO gives the lowest cost of goods sold and the thus highest taxable income and income tax payments.
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