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Basic Question 3 of 26
A firm uses FIFO to account for its inventory. Recently it found out the market price (of its inventory goods) has gone up by 10%. To reflect the future utility (revenue-producing ability) of the inventory, the firm should ______
B. adjust COGS 10% higher to reflect the current market prices.
C. change to LIFO to take advantage of tax savings.
D. make no adjustments.
A. adjust inventory 10% higher to reflect the current market prices.
B. adjust COGS 10% higher to reflect the current market prices.
C. change to LIFO to take advantage of tax savings.
D. make no adjustments.
User Contributed Comments 8
| User | Comment |
|---|---|
| sarath | Important Funda: No adjustment when the replacement prices at market are higher than the current value of inventory. |
| cong | Under US GAAP, no adj is required if market price rises above historical cost. |
| Yohan3109 | I guess COGS adjust automatiquely so no need to make adjustement because it's reflect the expense for the current year related to the sale. Is that correct? |
| quanttrader | since firm is using FIFO, then newer inventory will remain and reflects current market prices. therefore, no adj. |
| johntan1979 | Funda... learnt a new word today :) |
| endurance | the lower-of-cost-or-funda-theory |
| Yrazzaq88 | MARKET PRICE = US GAAP US GAAP = NO ADJUSTMENTS !!! |
| choas69 | both IFRS and US GAAP make no adjustments. |
I used your notes and passed ... highly recommended!
Lauren
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® 2024 Level I Curriculum, Volume 2, Module 6.