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Basic Question 11 of 16
During a period of rising prices, which of the following is lower when using FIFO rather than LIFO?
B. Income tax
C. Cost of goods sold
D. Net income
A. Income before tax
B. Income tax
C. Cost of goods sold
D. Net income
User Contributed Comments 2
| User | Comment |
|---|---|
| teddajr | FIFO -> Lower COGS -> Higher EBIT -> Higher IT -> Higher NI -> Lower CF |
| johntan1979 | You missed out an important step: Higher NI -> Higher tax -> Lower CF Higher NI doesn't necessarily mean lower CF. In fact, pre-tax CF is the same for both methods. |
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Learning Outcome Statements
calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods
CFA® 2025 Level I Curriculum, Volume 2, Module 6.