Question

In a period of rising purchase costs, LIFO usually gives a higher COGS and lower net...

In a period of rising purchase costs, LIFO usually gives a higher COGS and lower net income and therefore, provides lower tax expense.

True or false

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Answer #1

Answer

True -   Rising purchase costs, LIFO usually gives a higher COGS and lower net income and therefore, provides lower tax expense

Explanation

1. LIFO Means - "Last in - First out".

2. Last in first out Means : Last inventory item purchased is the first one to be sold.

3. As per the LIFO inventory valuation method, if the cost of the last inventoy purchased is rising than higher cost to be the charged to profit and loss accounts on the assumtion that last inventory is sold out. As a result of which net income is reduced.

4. If the net income is reduced than person has to pay lower tax expense.

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