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Why does fifo have a higher earnings per share than LIFO ? And why does fifo...

Why does fifo have a higher earnings per share than LIFO ? And why does fifo have a higher ROA than lifo. How is debt to equity affected using fifo and lifo ? Please use numbers in the equations so it’s easier for me to grasp thank you !
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Answer #1

FIFO have higher earnings as compared to LIFO because LIFO assigns latest cost of goods purchased and such cost is higher than the cost of goods (Due to inflation effect)previously purchase by the entity.Lets take example for clarity.

Particulars Under LIFO Under FIFO

Sales 5,00,000 5,00,000

Less: Cost of Goods sold (5550kgs) 3,20,250 2,87,750

Gross Margin 1,79,750 2,12,250

Purchase-dt1/04/2017-(3500Kgs @$50)

Purchase-dt01/11/2017-(3750Kgs @$55)

Purchase-dt1/02/2018-(3000Kgs @$60)

Under LIFO-COGS-5550Kgs

3000Kgs @$60=180000

2550Kgs @$55=140250

320250

Under FIFO-COGS-5550Kgs

3500Kgs @$50=175000

2050Kgs @$55=112750

287750

Debt to equity ratio=No effect on Debt Equity if we change from LIFO to FIFO.

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