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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?

A. Income before tax
B. Income tax
C. Cost of goods sold
D. Net income
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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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Colin Sampaleanu

Colin Sampaleanu

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® 2024 Level I Curriculum, Volume 2, Module 6.