CFA Practice Question

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CFA Practice Question

During a period of rising prices, which of the following is lower when using FIFO rather than LIFO?

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.
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