CFA Practice Question

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CFA Practice Question

Zealous Ltd. and Eager Ltd. are identical companies in every respect except that Zealous uses the LIFO method for inventory costing while Eager uses FIFO costing. The companies operate in an industry in which costs have been increasing over the past several years. Compared to Zealous, which of the following could be said about Eager?

A. Eager has lower earnings per share.
B. Eager has a higher cost of goods sold.
C. Eager has a lower ending inventory.
D. Eager has higher total assets.
Correct Answer: D

If prices are increasing, FIFO would provide higher ending inventory, since the goods on hand would be recorded at the most recent purchase prices.

User Contributed Comments 8

User Comment
stranger Eager would have higher EPS because the lower costs have been assigned for COGS and hence higher profit earned and EPS. Eager has lower COGS since the most recent purchases are more expensive and not accounter for COGS. Eager would have higher ending inventory since the closing inventory is costed at the most recent prices. HIGHER TOTAL ASSETS SINCE THE ENDING INVENTORY IS VALUED AT RECENT PRICES.
Mahen I think since Cost of inventory for Eager @ year end would be higher which will automatically bring down the profit and nalify the difference resulting in same EPS. so answer D is the only correct answer.
mabrickley wouldn't lifo method be costed at the most recent purchase price, i don't see how D would be the answer since fifo method would lower inventory
thud FIFO method => higher Ending inventory. That means more assets.
brahmareddy Why not B ?
survan @brahmareddy

Zealous is calculationg COGS using recent prices and prices are increasing so Zealous has a higher cost of goods sold.

Hope i cleared why ans should not be B.
andrej0143 @stranger I won't even read that because it feels like you're yelling
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