CFA Practice Question
The best measure of inventory turnover uses ______.
A. LIFO COGS in the numerator and FIFO inventory balance in the denominator.
B. FIFO COGS in the numerator and LIFO inventory balance in the denominator.
C. FIFO COGS in the numerator and FIFO inventory balance in the denominator.
Explanation: By using LIFO COGS in the numerator and FIFO inventory balance in the denominator, the best matching of costs, as current costs, is attained.
User Contributed Comments 7
| User | Comment |
|---|---|
| Kuki | By best measure it doesn't mean conservative..it means best matching of costs! |
| drricharddragon | LIFO is better for I/S values -> Matches current cost FIFO is better for B/S values -> Matches current value |
| chantal | This question plays with words. the reality is that, other than US cies, all others use FIFO. Consequently no analyst will EVER be able to calcule a turnover using a mix of Lifo and Fifo. Best scenario in a dreameee world.... and not in conformity with the matching principles promulgated by the International Accouting standards... SO WHAT IS THE POINT OF A QUESTION LIKE this ? |
| cfa001 | because you are going to take an exam that's administered by an institute in the US. |
| hevans | That being said, the best measure for inventory turnover is likely the one in which the firm is properly following the accounting principles. A firm will never be able to use LIFO & FIFO together and receive an unqualified. |
| thebkr7 | LOL @ CFA001 |
| dbalakos | tricky |