Asked by Yaneth Restrepo on Jul 14, 2024
Verified
LIFO can be applied on either a periodic or perpetual basis.However,using the perpetual method defeats the purpose of LIFO.
LIFO
Last In, First Out, an inventory valuation method where the goods last added to inventory are the first to be sold.
Periodic
Pertaining to or occurring at regular intervals.
Perpetual Basis
An approach or method without a predetermined end date, continuing indefinitely.
- Evaluate how various inventory accounting approaches affect financial ratios and statements, and pinpoint the necessary modifications for a just comparison.
Verified Answer
GG
Gissal GhousyJul 15, 2024
Final Answer :
True
Explanation :
LIFO is usually applied on a periodic basis, which means that the cost of goods sold and the value of ending inventory are calculated at the end of the accounting period when a physical inventory count is taken. However, if a company uses the perpetual method, it will continuously update the inventory records every time a purchase or sale is made, making it difficult to keep track of the true order in which the goods were sold. This defeats the purpose of LIFO, which assumes that the most recent units purchased are the first to be sold, as it is not possible to accurately determine which units were actually sold.
Learning Objectives
- Evaluate how various inventory accounting approaches affect financial ratios and statements, and pinpoint the necessary modifications for a just comparison.
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