Question

Which of the following is true regarding the use of LIFO for inventory valuation?

a. If LIFO is used for external financial reporting, then it must also be used for internal 9. reports.
b. For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach
c. If LIFO is used for external financial reporting, then it cannot be used for tax purposes.
d. When prices are falling, the use of LIFO can help companies minimize taxes e. IFRS does not allow the use of LIFO.

Answer 1

The answer is options D) and E

• When prices are falling, the use of LIFO can help companies minimize taxes
• IFRS does not allow the use of LIFO.

Step-by-step explanation:

LIFO, which stands for last-in-first-out, is an inventory valuation method which assumes that the last items placed in inventory are the first sold during an accounting year.

By using LIFO, the balance sheet shows lower quality information about inventory. It expenses the newest purchases first thus leaving older, outdated costs on the balance sheet as inventory.

When prices are falling, the use of LIFO the use of LIFO can help companies minimize taxes. This occurs when firms save on taxes as well as better match their revenue to their latest cost

In this scenario, LIFO will assume they sell the most recent inventory first resulting in a lower cost of goods sold number

IFRS does not allow the use of LIFO due to potential distortions on a company's profitability and financial statements.