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Under inflationary conditions, which of the methods will not show highest value of closing stock?
  • a)
    FIFO
  • b)
    LIFO
  • c)
    Weighted Average
  • d)
    None of the above
Correct answer is option 'B,C'. Can you explain this answer?
Most Upvoted Answer
Under inflationary conditions, which of the methods will not show high...
Before chosing any of the stock valuation methods you have to see that there is inflation , deflation or balace situation in the marekt for materials, labors etc.if there is inflation,FIFO method will give you the highest stock value and then Average method.if there is deflation,
LIFO method will give you the highest stock value and the average menthod.if there is balance situation which is uncommon.then all the method will give same stock.
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Community Answer
Under inflationary conditions, which of the methods will not show high...
Under inflationary conditions, the method that will not show the highest value of closing stock is LIFO (Last In, First Out) and Weighted Average.

Explanation:

FIFO (First In, First Out):
- FIFO assumes that the items that are purchased first are sold first.
- Under inflationary conditions, the prices of goods tend to increase over time.
- As FIFO assumes that older inventory is sold first, the closing stock will consist of the most recently purchased inventory, which is valued at the higher prices.
- Therefore, FIFO will show the highest value of closing stock under inflationary conditions.

LIFO (Last In, First Out):
- LIFO assumes that the items that are purchased last are sold first.
- Under inflationary conditions, the prices of goods tend to increase over time.
- As LIFO assumes that the most recently purchased inventory is sold first, the closing stock will consist of the older inventory, which is valued at the lower prices.
- Therefore, LIFO will not show the highest value of closing stock under inflationary conditions. This is because the closing stock is valued at the lower prices.

Weighted Average:
- Weighted Average method calculates the average cost of inventory by dividing the total cost of goods available for sale by the total number of units.
- Under inflationary conditions, the prices of goods tend to increase over time.
- The weighted average method considers both the older and newer inventory in the calculation of average cost.
- Therefore, the weighted average method will also not show the highest value of closing stock under inflationary conditions.

Conclusion:
- Under inflationary conditions, FIFO is the method that will show the highest value of closing stock.
- LIFO and weighted average methods will not show the highest value of closing stock under inflationary conditions.
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Under inflationary conditions, which of the methods will not show highest value of closing stock?a)FIFOb)LIFOc)Weighted Averaged)None of the aboveCorrect answer is option 'B,C'. Can you explain this answer?
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