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Basic Question 8 of 10
When purchases exceed sales for the current year in a period of falling prices, profits reported under LIFO will be ______
B. greater than profits reported under FIFO.
C. the same as profits reported under average cost.
A. lower than profits reported under FIFO.
B. greater than profits reported under FIFO.
C. the same as profits reported under average cost.
User Contributed Comments 3
| User | Comment |
|---|---|
| surob | I guess it depends whether the most current prices are lower than the oldest ones. In other words, it depends how much the current prices fall and whether it will be lower than previous older prices. For the exam, if not given, always assume the price is rising. |
| Paulvw | Falling prices! |
| quanttrader | tricky - falling prices. Otherwise in normal inflationary environment, the LIFO layers will accumulate and COGS will be greater implying lower profit than FIFO. Opposite in deflationary environment. |
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Learning Outcome Statements
describe the presentation and disclosures relating to inventories and explain issues that analysts should consider when examining a company's inventory disclosures and other sources of information
CFA® 2024 Level I Curriculum, Volume 2, Module 6.