CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Given equal circumstances, which inventory method is the best to use for tax purposes (assume prices are rising)?
A. Average cost
Explanation: LIFO reduces taxable income and thus reduces taxes.

User Contributed Comments 6

User Comment
jwp2 If no change in past or future price levels of inventory, taxable income will be the same under each method.
Terence LIFO reduces taxable income only prices are increasing.
kritan best for whom, one might ask.
SMcalister When it asked which one was best for tax purposes, I thought it was asking us to minimise tax.

Does "best for tax purposes" mean incur as much tax as possible?
joy2015 SMcalister: That's exactly what the questions says! I don't understand your question.
praj24 @SMcalister

Tax purposes - less the better! (company view - they produce the fin. statements)

Therefore, LIFO (rising prices) will complete that objective ;)
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