During a period of rising prices, which method generally reports the highest closing inventory value?
Correct answer: A. First-in, first-out method
- A. First-in, first-out method
- B. Last-in, first-out method
- C. Simple average method
- D. Retail inventory method
Explanation
When prices rise, FIFO leaves the latest and usually more expensive purchases in closing inventory. LIFO generally produces a lower closing inventory value because older, cheaper costs remain in inventory less often.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
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More Inventory Valuation questions
Which inventory cost flow method is not permitted under IAS 2?
Which inventory valuation method assumes that the earliest goods purchased are sold first?
Under IAS 2, inventories are generally measured at which amount?
A business has 100 units costing Rs. 10 each and 200 units costing Rs. 13 each. Under the weighted average cost method, the cost per unit is:
Net realisable value of inventory is best defined as:
A company buys 500 units at Rs. 20 each and 300 units at Rs. 24 each. If it sells 400 units and uses FIFO, the cost of goods sold is: