Inventory may be valued on the tax return at the lower of cost or market unless
A)replacement cost is higher than historical cost.
B)the taxpayer determines inventory cost using the LIFO method.
C)the taxpayer determines inventory cost using the FIFO method.
D)the cash method of accounting is used by the taxpayer.

Question

Quizplus · Accepted Answer

Under the LIFO (Last In, First Out) inventory costing method, the most recent inventory purchases are assumed to be sold first. This means that the cost of goods sold is calculated using the most recent (and usually higher) inventory costs. Therefore, valuing inventory at market price would not result in a lower value than cost. Therefore, in this situation, the inventory must be valued at the lower of cost or market.

Inventory May Be Valued on the Tax Return at the Lower