Final answer:
Using LIFO during a period of falling costs results in lower inventory value on the balance sheet, while FIFO would result in higher inventory values due to the valuation methods of the remaining stock.
Step-by-step explanation:
When costs to purchase inventory are falling over time, using Last In, First Out (LIFO) leads to reporting lower inventory on the balance sheet than First In, First Out (FIFO). Because LIFO assumes that the most recently acquired items are sold first, the older, less expensive items remain in inventory. This results in the remaining inventory being valued at lower historic costs, which leads to a lower inventory valuation on the balance sheet compared to FIFO, which would use the more recent, lower purchase costs for the cost of goods sold (COGS), leaving the higher-priced, earlier purchases in inventory.
In contrast, FIFO assumes the oldest inventory items are sold first. Hence, in a period of falling prices, the COGS would reflect the higher cost of older inventory, while the more recent, cheaper purchases would be counted in the remaining inventory, thus reporting higher inventory values on the balance sheet.