CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods has not been constant, then the ______
A. net income of the companies will be identical.
B. ending inventory of the companies will be identical.
C. cost of goods available for sale of the companies will be identical.
Explanation: The cost of goods available for sale will be the same if beginning inventory and purchases are the same; if different methods are used, cost of goods sold and net income will be different, as different methods give a different value for ending inventory.

User Comment
sireklove This question doesn't make much sense to me: 1) I'm not sure what "different inventory flow assumptions" means . . . is this just FIFO vs. LIFO? 2) Does "cost of goods available for sale" just mean the price at which units are sold? I don't see how beginning inventory and purchases affect this value as indicated in the answer. Just confusing in general . . . any clarifications would be great.
Gina 1) yes, this refers to different inventory costing methods. 2) Cost-of-goods-available for sale = beginning inventory + purchases. Purchases are not affected by the inventory costing method. Beg.inventory, in this question, is assumed to be identical (ie "identical inventorial costs"
anricus If A is right then so too is B, C and D????
NufaNka Anricus, read again the explanation of Gina.
chuong cost of goods available for sale = BGN inventory + puchase
najat Could anyone explain to me the difference between "ending inventory" and "cost of goods available for sale"...? does the latter exclude the movements in inventory during the year in its calculation?
teje beg. inv. + purchases - COGS = End. Inv.

with beg. inv. + purchases = goods available for sale (i.e. GAS)

The different inventory flow assumptions (i.e. LIFO, FIFO) will have an effect on COGS and end. inv. but not on GAS
business COGS = Beg inventory + purchases - closing inventory

TEJE is right.
Shortseller If beg inv + purchases are the same than presumable the price on each unit is the same. Thus no matter what method you use COGS/Inventory is also the same.