If prices were rising and a Canadian company wanted to report a smaller amount of profit for tax purposes, they should use the moving average cost flow assumption.

Question

Quizplus · Accepted Answer

The moving average cost flow assumption assigns an average cost to all units in inventory, regardless of when they were purchased. This means that the cost of goods sold will be lower in periods when prices are rising, and higher in periods when prices are falling. As a result, a Canadian company that wants to report a smaller amount of profit for tax purposes should use the moving average cost flow assumption.

If Prices Were Rising and a Canadian Company Wanted to Report