Which of the following is a disadvantage to business of the LIFO method of applying costs to inventory?
A) It is difficult for a computer program to apply the method.
B) It understates the balance sheet value for inventory.
C) Current income is matched with the most recent costs of acquiring goods.
D) If it is allowed for tax purposes, in times of rising prices it results in less tax being paid in the current period.

Question

Quizplus · Accepted Answer

The LIFO method results in the most recent costs of acquiring goods being matched with revenue, which means that older, lower cost inventory remains on the balance sheet at historical cost. As inventory costs tend to increase over time, this understates the balance sheet value for inventory. This can be a disadvantage for businesses as lenders may view the assets as less valuable than they actually are.

Which of the Following Is a Disadvantage to Business of the LIFO