- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 6. Analysis of Inventories
- Subject 1. Inventory Valuation
CFA Practice Question
Companies using LIFO are required to disclose their LIFO reserve. The LIFO reserve is ______.
B. the amount of inventory held in reserve in case of LIFO liquidation
C. the difference between the cost of goods sold under LIFO inventory and the cost of goods sold under FIFO inventory
A. the difference between the inventory at LIFO and the inventory at FIFO
B. the amount of inventory held in reserve in case of LIFO liquidation
C. the difference between the cost of goods sold under LIFO inventory and the cost of goods sold under FIFO inventory
Correct Answer: A
The LIFO reserve shown in the footnotes is the dollar amount difference between the inventory at LIFO and the inventory at FIFO. It can be used to restate the LIFO cost of goods sold to FIFO cost of goods sold.
User Contributed Comments 5
| User | Comment |
|---|---|
| stranger | LIFO Reserve = difference between Inv @ LIFO and Inv @ FIFO |
| kalps | LIFo inventory is the difference between the inventory under LIFO and the inventory under FIFO |
| Shelton | R(LIFO) = Ivt(FIFO) - Ivt(LIFO) |
| Indira | to Shelton: vice versa: LIFO Reserve = Inventory at LIFO - Inventory at FIFO |
| bahodir | Indira, Shelton is right: FIFO Inventory = LIFO Inventory + LIFO Reserve So, LIFO Reserve = FIFO Inventory - LIFO Inventory |