- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 2. Inventory Valuation Methods
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 Contributed Comments 9
|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.|