PRC-1 · Chapter 7 · Question 38 of 100
During a period of rising prices, which statement accurately reflects the impact of using FIFO instead of AVCO?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) FIFO will result in higher Net Profit and higher closing inventory value.
Explanation
Under FIFO, older, cheaper costs are expensed to Cost of Sales, meaning Cost of Sales is lower and Profit is higher. The newer, more expensive costs remain in closing stock, making its value higher.
More IAS 2: Inventories MCQs
- Q40An entity uses the AVCO method. Opening stock: 100 units @ Rs. 10. Purchase: 100 units @ Rs. 12. Sale: 50 units. What is the AVCO per unit…
- Q41If an entity mistakenly understates its opening inventory value, what is the direct impact on the current year's financial statements?
- Q42Which of the following best explains why closing inventory is deducted in the Cost of Sales calculation?
- Q43A business bought 100 units at Rs. 50 each. It paid Rs. 500 for delivery of the batch. Two units were found to be completely destroyed…
- Q44What is the primary reason IAS 2 requires inventory to be written down to Net Realizable Value when it falls below cost?