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Which inventory cost flow assumption (FIFO, LIFO or Weighted-Average) most accurately states the value of inventory...

Which inventory cost flow assumption (FIFO, LIFO or Weighted-Average) most accurately states the value of inventory and why?

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Answer #1

The weighted average inventory method is the most accurate method of inventory valuation.

As this method averages the value of inventory,whether it has been purchased at higher cost or at lower cost.With the perespective of users of financial statement this inventory system is understood and transparent.

Under FIFO method tax liability can be increased and under LIFO method tax liability can be decreased.Hence these two methods remains in the radar of department and mostly the LIFO method of inventory,where tax liabilities is manipulated easili.

The weighted average method is a balance method with all the perespectives.As this method spread the inflation and deflation on the reminder of units easily.

Please comment for any explanation.

Thanks,

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