- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 22. Inventories
- Subject 2. Inventory Valuation Methods
CFA Practice Question
Which of the following statements related to the LIFO method of inventory valuation is false?
A. Despite the many benefits of LIFO, it is used by fewer U.S. companies than either FIFO or weighted average.
B. The LIFO conformity rule is a tax ruling prohibiting the use of LIFO for tax purposes unless it is also used for external financial reporting purposes.
C. Under LIFO, companies can manage earnings at the end of an accounting period by purchasing additional inventory.
Explanation: LIFO is more commonly used than weighted average for inventory valuation purposes.
User Contributed Comments 6
| User | Comment |
|---|---|
| Iyal | how about B? I though you can use lifo for tax and fifo for finance report. If that true, B should be false. Please explain anyone? |
| cbb1 | No if you use LIFO for tax, you must use LIFO for financial reporting. If you use FIFO for tax, you could, however, use LIFO for financial reporting. |
| Cata | how can you manage earning at the end of Acc per ONLY by purchasing additional inventory? It has to the used, afterwards if flows to IS!!! |
| haarlemmer | I am not sure if LIFO reserve should be reported? |
| armanaziz | Ans to Cata: LIFO Method will include the price of the additional inventory in calculating COGS. |
| bidisha | "Whatever is good for taxes is good for financial reporting" ie lifo |