Why Option B is correct and not C?
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C will not be the answer because-
In the period of increasing prices, the FIFO cost of sales will include the products at lower prices compared with the current market prices for the same product, therefore, the FIFO cost of sales is undervalued, and Gorss profit will be overstated.
But if LIFO cost of sales is used by the analyst, then it will show the cost of sales at the same level as their current market prices.
Option B is correct.
Because in the period of decreasing prices, FIFO inventory will include stock from the latest purchases which are approximately equal or near to current market prices, which will show the inventory at a similar level as their current market price.
Hope the query is resolved, please correct if wrong in anyway.
its always a fight b/w lifo and fifo
fifo shows correct amt of inv in b/s while lifo shows correct COGS in i/s
in declining prices , fifo inv shows correct inv values while lifo will overstate the inv