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FIFO vs LIFO

1. Inventory and cost of goods sold figures prepared under the LIFO cost flow assumption versus the FIFO cost flow assumption can differ dramatically.

a. Would an analyst consider ending inventory asset value more useful if computed using LIFO or FIFO?

b. Would an analyst consider cost of goods sold more useful if computed using LIFO or FIFO?

c. Assume a company uses the LIFO cost flow assumption. Identify any FIFO-computed values that are useful for analysis purposes, and explain how they are determined using financial statement information.

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Dear Student,

a. FIFO. Because, if FIFO is followed, the inventory purchased first will be issued for production first and the inventory purchased last will be held as closing inventory and the amount of closing stock will be on higher amount and it will increase the net income and the amount of total asset will also be higher.

b. Because, under LIFO, inventory purchased last will be ...

Solution Summary

Inventory and cost of goods sold figures prepared under LIFO cost flow assumptions versus the FIFO cost flow assumption are examined.

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