In periods of rising prices, the inventory method which results in the inventory value on the statement of financial position that is closest to current cost is the
A) FIFO method.
B) specific identification method.
C) average-cost method.
D) tax method.

Question

Quizplus · Accepted Answer

In periods of rising prices, the FIFO (first in, first out) method results in the inventory value on the statement of financial position that is closest to current cost. This is because under the FIFO method, the items sold are assumed to be the oldest items in inventory, and the items remaining in inventory are assumed to be the most recently acquired and therefore reflect current cost. This method results in a more accurate representation of the current value of inventory compared to the average-cost method, which takes into account all costs of all inventory items regardless of when they were purchased or produced. The specific identification method is not practical for most companies, as it requires keeping track of the cost of each specific item in inventory, which can be time-consuming and costly. The tax method is not a recognized inventory method.

In Periods of Rising Prices, the Inventory Method Which Results