- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 6. Analysis of Inventories
- Subject 2. The Effects of Inflation and Deflation on Inventories, COGS and Gross Margin
CFA Practice Question
During a period of rising prices, which of the following is lower when using FIFO rather than LIFO?
B. Income tax
C. Cost of goods sold
D. Net income
A. Income before tax
B. Income tax
C. Cost of goods sold
D. Net income
Correct Answer: C
User Contributed Comments 2
| User | Comment |
|---|---|
| teddajr | FIFO -> Lower COGS -> Higher EBIT -> Higher IT -> Higher NI -> Lower CF |
| johntan1979 | You missed out an important step: Higher NI -> Higher tax -> Lower CF Higher NI doesn't necessarily mean lower CF. In fact, pre-tax CF is the same for both methods. |