Which of the following is a disadvantage to business of the LIFO method of applying costs to inventory?
A) Current income is matched with the most recent costs of acquiring goods.
B) It understates the balance sheet value for inventory.
C) It is difficult for a computer program to apply the method.
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 of costing inventory results in the oldest (and therefore usually the cheapest) inventory being matched with current sales revenue. This means that the balance sheet value for inventory is understated, which can impact borrowing capacity and the ability to show a healthy financial position to stakeholders.

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