Question
Accounting Standards do not permit following method of
inventory valuation:Solution
LIFO (Last-In-First-Out) is a method of inventory valuation where the cost of the last goods purchased or produced is assumed to be the cost of goods sold first. However, Accounting Standards do not permit the use of LIFO in inventory valuation. This is because LIFO results in the reporting of lower profits and lower taxes during inflationary periods, which can lead to inconsistent financial reporting across companies. Instead, companies are required to use either FIFO (First-In-First-Out) or weighted average cost method for inventory valuation in accordance with the Accounting Standards.
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