Accounting

Impact on the reported profit and asset value for an accounting period of the FIFO and average method.

Impact on the reported profit and asset value for an accounting period of the FIFO and average method.

The key issue for discussion in this question is the relevance and reliability of financial information produced under each method.

FIFO (First In First Out) values the asset at the latest price and includes the earliest purchases in inventory and thus in times of rising prices may defer losses to the next accounting period and may overstate assets.

 Weighted average ‘smooths’ the impact of price rises across income and asset values but may mask problems with obsolescence.

LIFO Method is used generally while inflationary condition in the Economy.

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