Which of the following inventory valuation methods show higher profits during the period of rising prices?
A. FIFO
B. LIFO
C. Weighted average cost method
D. Simple average method
Answer: Option A
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It should be LIFO
As FIFO method sends inventory as First IN First Out technique the cost of the inventory enters firstly as less price as that time no inflation was there. But at the time of sending the price we get is higher than that of previous. So it gives more profit at the time of inflation. 😝
First In, First Out (FIFO) is an accounting method in which assets purchased or acquired first are disposed of first. FIFO assumes that the remaining inventory consists of items purchased last.
Since inventory costs rise with inflation, you are using the cheaper inventory units first. The remaining unsold inventory consists of the higher-cost units. This decreases your cost of goods sold and increases your taxable income