- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 2. Expense Recognition - Inventory
CFA Practice Question
Which of the following results from using the LIFO method of inventory cost flows during a period of inflation?
B. Overvalued inventory
C. Currently valued cost of goods sold
D. Currently valued inventory
A. Understated cost of goods sold
B. Overvalued inventory
C. Currently valued cost of goods sold
D. Currently valued inventory
Correct Answer: C
LIFO matches current costs with current revenues. During a period of inflation, LIFO results in currently valued cost of goods sold.
User Contributed Comments 3
| User | Comment |
|---|---|
| stranger | a. COGS is overstated since we are valuing COGS at the current higher prices. b. inventory would be undervalued since it is valued at the first in costs. c. COGS ARE CURRENTLY VALUED (CURRENT PRICES) d. inventory is valued at first in costs. |
| chicyvan | nice explaination. Thank you |
| cwest020 | Stranger is incorrect on A. COGS is not overstated, it is valued at current prices. Hence the correct answer of C. |