Financial Reporting and Analysis Q233

0. Company ABC operates in an environment of declining prices. Its reported profits will tend to be the lowest if it accounts for inventory using the:

  • Option : A
  • Explanation : In a declining price environment, the newest inventory is the lowestcost inventory. Therefore, using the FIFO method i.e. selling the older, expensive inventory first, will result in higher cost of sales and lower profit.
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