is Schweser correct on this LIFO question? net, accounting, companies, practical, question

wonderfuldream

In periods of rising prices and stable or increasing inventory quantities,compared with companies that use FIFO inventory accounting, companies that use the LIFO method will have:

A) higher COGS and lower taxes
B) higher net income and higher taxes
C) lower inventory balances and lower working capital.

My answer: A

Schweser Answer: B (Q58, Exam 3 after noon session, Vol-1 practical exam)

JPSem

Yes, Scwesser is correct.

With FIFO you are selling the most recent goods purchased. Therefore, when prices are rising, the goods you are selling under FIFO will be more than under LIFO (older goods). Thus, for a LIFO company, their CGS will be lower, and hence higher NI and higher taxes.

amqata

huh? Schweser is wrong bro, rising prices, LIFO net income is lower capone.

dcfox83

I_Passed_Level_1 Wrote:
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> huh? Schweser is wrong bro, rising prices, LIFO
> net income is lower capone.


Thanks for the confirmation.

LokiDog2

With convergance to IFRS LIFO is no longer an acceptable inventory valuation technique, many countries in Europe as well as Canada, have already implemented IAS 2 - Inventory, therefore this method is not really considered an acceptable valuation technique, therefore don't get caught up on LIFO questions.

eagles_dare13

Ya but there are still going to be questions on LIFO, their answer is wrong in my opinion, prices rising with LIFO means that the more expensive inventory is going into COGS, lowering income and taxes on that income

kmf229

The Answer is A, Schweser is wrong.

leadcfa

CareerThruCFA is correct. Schweser is def. wrong on this. Answer is A, as stated above.

MonkeyBusiness

Definetely A is correct option