If a company values inventory at the lower of cost and NRV, where market is defined as replacement cost, and prices are rising, which cost assumption would most likely require the smallest write down?
A)FIFO
B)LIFO
C)Average cost
D)The write down is not affected by the cost flow assumption.

Question

Quizplus · Accepted Answer

FIFO assumes that older items are sold first, so the cost of inventory on hand is based on the older, lower-cost items. This would result in a smaller write-down than LIFO or average cost when market prices are rising.

If a Company Values Inventory at the Lower of Cost