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LIFO Inventory Method - Material Cost, Cost Accounting Video Lecture | Cost Accounting - B Com
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FAQs on LIFO Inventory Method - Material Cost, Cost Accounting Video Lecture - Cost Accounting - B Com
| 1. What is the LIFO inventory method? |  |
Ans. The LIFO (Last-In, First-Out) inventory method is a cost accounting method where the most recently purchased or produced items are considered to be sold first. This means that the cost of goods sold reflects the cost of the most recently acquired inventory, while the ending inventory reflects the cost of the oldest inventory.
| 2. How does the LIFO inventory method determine the material cost? | |
Ans. The LIFO inventory method determines the material cost by valuing the inventory based on the cost of the most recently acquired materials. When calculating the cost of goods sold, the LIFO method assumes that the cost of the most recently acquired materials is used first, resulting in a higher cost of goods sold and lower net income compared to other inventory costing methods.
| 3. What are the advantages of using the LIFO inventory method? | |
Ans. The advantages of using the LIFO inventory method include tax advantages, as it may result in lower taxable income due to higher cost of goods sold. Additionally, LIFO can provide a better match of costs with revenue during periods of inflation, as it reflects the higher current replacement costs of inventory.
| 4. What are the disadvantages of using the LIFO inventory method? | |
Ans. The disadvantages of using the LIFO inventory method include the potential for inventory obsolescence, as older inventory may remain unsold for longer periods and become outdated. LIFO also may not reflect the actual physical flow of goods, and it requires detailed record-keeping to accurately track inventory purchases and costs.
| 5. Are there any limitations or restrictions when using the LIFO inventory method? | |
Ans. Yes, there are limitations and restrictions when using the LIFO inventory method. One limitation is that it is not allowed under International Financial Reporting Standards (IFRS), so companies using IFRS must use other inventory costing methods. Additionally, the use of LIFO requires compliance with tax regulations, and a change in inventory costing method may require additional reporting and adjustments.
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Nov 16, 2024 Last updated |
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