CFA Practice Question

CFA Practice Question

Which of the following statements about inventories is true?
A. During inflation, LIFO inventory accounting tends to overstate the current ratio.
B. U.S. generally accepted accounting principles (GAAP) require the use of lower-of-cost or market-valuation basis for inventories.
C. FIFO inventory balances generally contain old and outdated costs that have little or no relationship to current costs.
Explanation: During inflationary times LIFO shows lower inventory balances, thus understates the current ratio. FIFO uses the most recent or current costs to value ending inventory on the balance sheet.

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