- 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
When price levels have been increasing throughout a period, a company using the LIFO inventory valuation method instead of the FIFO inventory valuation method would have ______.
B. lower net income
C. higher net income
A. higher equities
B. lower net income
C. higher net income
Correct Answer: B
In a period of rising prices, LIFO will yield a lower income because its cost of goods sold is higher (since it uses newer, and higher, costs).
User Contributed Comments 1
User | Comment |
---|---|
teddajr | LIFO -> Low NI -> Low tax -> High CF |