If a firm changes its inventory method from FIFO to LIFO just prior to a period of rising prices,the effect in the next period will be Current Ratio Inventory Turnover
A) No effect Increase
B) No effect Decrease
C) Increase Decrease
D) Decrease Increase

Question

Quizplus · Accepted Answer

Switching from FIFO to LIFO during a period of rising prices will result in a decrease in the current ratio (because LIFO values inventory at higher prices), and an increase in inventory turnover (because inventory is being valued at lower prices, so it appears to be turning over more quickly).

If a Firm Changes Its Inventory Method from FIFO to LIFO