While it is possible to estimate the amount of inventory holding gain (or loss)that is embedded in a company's FIFO earnings number,this approximation only works as long as the total number of inventory units on hand does not fluctuate much during the year and as long as purchases and sales take place frequently.

Question

Quizplus · Accepted Answer

The statement is correct. The estimation of inventory holding gain (or loss) in FIFO earnings only works under the conditions mentioned in the statement. If the inventory units on hand fluctuate significantly or if purchases and sales are infrequent, the approximation may not be accurate.

While It Is Possible to Estimate the Amount of Inventory