PRC-1 · Chapter 7 · Question 59 of 100
During a period of rising prices (inflation), which inventory valuation method generally results in a higher closing inventory value and a higher reported net profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) First in, First out (FIFO)
Explanation
Under FIFO, the older (cheaper) costs are assigned to Cost of Sales, resulting in lower expenses and higher net profit. The newer (more expensive) costs remain in closing inventory, increasing its asset value.
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