Question

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the:
A. LIFO method.

B. FIFO method.

C. weighted-average method.

D. moving average method.

Answer 1

Answer: B. FIFO method

Explanation: The inventory prices of goods as calculated by a firm will remain the same at year end if a firm's inventory price is automatically updated on account of any additional inventory purchase and also if done on a periodic basis. This will occur only when the inventory pricing system is based on First-in-First-out method, whereby the prices of first inventory purchase is first associated or applied on goods sold until the unit in the inventory is exhausted. This allows prices of goods to move based on period of purchase where older prices gets precedence over the newer inventory purchase.