Question

Which method of inventory would you choose to use if you were: (1) a CEO of a company just going public and (2) a CEO of a company short on cash? FIFO, LIFO, or Average Cost Method.

Answer 1

1)In case of CEO just going public

We choose FIFO method of inventory valuation Because

In general prices are riseing time to time so in fifo method assumes recent purchases becomes inventory of closing the earlier purchases are sold out so closeing inventory should be recorded at higher prices

It is very much helpful to the companies to maintain strong Balance sheet in order to satisfy investors and financial institutions for raiseing loans

So I prefer FIFO method

2)In case CEO of company cash short in hand

We choose LIFO method because

Lifo method assumes all sales out of recent purchases and the closing inventory should old stock genally haveing low cost it result increase in value of cost of goods and reduceing taxable income it result less out flow of cash

So I prefer LIFO method of inventory valuation