Question

Initial adoption of IFRS by a company that currently utilizes the LIFO method would likely result in:

a) Higher inventory valuation
b) Lower inventory valuation
c) No change in inventory valuation
d) Fluctuating inventory valuation

Answer 1

The initial adoption of IFRS by a company currently using the LIFO method would likely result in a lower inventory valuation.

Step-by-step explanation:

When a company adopts International Financial Reporting Standards (IFRS) and currently uses the Last-In, First-Out (LIFO) inventory valuation method, it will likely result in a lower inventory valuation.

Under IFRS, the First-In, First-Out (FIFO) method is generally followed, which assumes that the inventory items that are purchased or produced first are sold first. This differs from LIFO, where the inventory items that are purchased or produced last are sold first.

Since FIFO assumes that the older inventory items are sold first, the cost of these items is included in the cost of goods sold, resulting in a lower inventory valuation on the balance sheet.