Question

Both U.S. GAAP and IFRS permit the use of the LIFO method to account for inventories.

True or False

Answer 1

The statement is false; while U.S. GAAP allows the use of LIFO for inventory accounting, IFRS does not permit the LIFO method.

Step-by-step explanation:

False, only U.S. GAAP permits the use of the Last-In, First-Out (LIFO) method to account for inventories. The International Financial Reporting Standards (IFRS) do not allow the use of LIFO. Under U.S. GAAP, companies can choose between several inventory valuation methods, including LIFO, First-In, First-Out (FIFO), and the average cost method.

However, IFRS advocates for a consistent approach to inventory valuation, favoring FIFO or the weighted average cost method. The prohibition of LIFO under IFRS is due to concerns regarding the representation of the actual flow of inventory and its effects on comparability and relevance in financial reporting.