Question

If prices are rising and a company's physical inventory levels are unchanged, the use of FIFO rather than LIFO for inventory valuation will tend to result in the current period in a?

Answer 1

The use of FIFO instead of LIFO in this context for inventory valuation will tend to produce an increase in net income, hence an increase in income tax. When prices are rising, the cost of goods sold are lower while the value of inventory is higher, hereby boosting the net income. Though sounding attractive, the increase in net income accordingly implies an increase if the amount of ta to settle.