(CMA adapted, Dec 95 #27) Somali Inc.is a profitable company with the goal to maximize cash flow.A valid reason for Somali not to adopt the last-in, first-out (LIFO) method of inventory valuation is the

Question

Quizplus · Accepted Answer

The LIFO method of inventory valuation assumes that the most recent inventory purchased is sold first, which tends to increase the cost of goods sold and lower reported profits when prices are rising. Since Somali Inc's goal is to maximize cash flow, they would want to minimize any decreases in reported profits. Therefore, it would be a valid reason for Somali not to adopt the LIFO method of inventory valuation when prices are rising.

(CMA Adapted, Dec 95 #27) Somali Inc