CFA Practice Question

CFA Practice Question

Which of the following combinations of accounting practices will lead to the highest reported earnings in an inflationary environment in the earlier years?

Depreciation Method; Inventory Method
A. Straight line; LIFO
B. Double declining balance; LIFO
C. Straight line; FIFO
Explanation: FIFO yields the lowest COGS (thus, higher income) due to its use of the oldest pricing, straight-line depreciation applies an even distribution of depreciation expense over the life of the asset, and double-declining balance applies higher depreciation expense in the earlier years.

User Contributed Comments 3

User Comment
Creep Bah! I assumed NET INCOME!
SKIA Even if you assumed Net Income, FIFO still has higher NI.
GBolt93 And tax savings from double declining don't offset the additional expense.
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