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Basic Question 2 of 26
If a company uses FIFO and is experiencing declining inventory replacement prices, it should (under GAAP) ______
B. change to LIFO to show a lower COGS and higher net income.
C. lower the inventory values to reflect the lower replacement market prices.
A. use specific identification method to track the declining inventory unit values.
B. change to LIFO to show a lower COGS and higher net income.
C. lower the inventory values to reflect the lower replacement market prices.
User Contributed Comments 4
| User | Comment |
|---|---|
| Rotigga | The key phrase above is _inventory replacement prices_; i.e. the cost to replace inventory at the market price is less than historical cost. |
| quanttrader | lower of cost or market rule-- applicability to reality. |
| johntan1979 | GAAP: Lower of historical cost or market IFRS: Lower of historical cost or NRV |
| choas69 | the way its phrased man, ur inventory is selling lower in the market so you should lower its carrying amount in the balance sheet to match the market and done. |
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Learning Outcome Statements
describe the measurement of inventory at the lower of cost and net realisable value and its implications for financial statements and ratios
CFA® 2025 Level I Curriculum, Volume 2, Module 6.