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Basic Question 3 of 26
A firm uses FIFO to account for its inventory. Recently it found out the market price (of its inventory goods) has gone up by 10%. To reflect the future utility (revenue-producing ability) of the inventory, the firm should ______
B. adjust COGS 10% higher to reflect the current market prices.
C. change to LIFO to take advantage of tax savings.
D. make no adjustments.
A. adjust inventory 10% higher to reflect the current market prices.
B. adjust COGS 10% higher to reflect the current market prices.
C. change to LIFO to take advantage of tax savings.
D. make no adjustments.
User Contributed Comments 8
| User | Comment |
|---|---|
| sarath | Important Funda: No adjustment when the replacement prices at market are higher than the current value of inventory. |
| cong | Under US GAAP, no adj is required if market price rises above historical cost. |
| Yohan3109 | I guess COGS adjust automatiquely so no need to make adjustement because it's reflect the expense for the current year related to the sale. Is that correct? |
| quanttrader | since firm is using FIFO, then newer inventory will remain and reflects current market prices. therefore, no adj. |
| johntan1979 | Funda... learnt a new word today :) |
| endurance | the lower-of-cost-or-funda-theory |
| Yrazzaq88 | MARKET PRICE = US GAAP US GAAP = NO ADJUSTMENTS !!! |
| choas69 | both IFRS and US GAAP make no adjustments. |
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Craig Baugh
Learning Outcome Statements
describe the measurement of inventory at the lower of cost and net realisable value and its implications for financial statements and ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 6.