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Question

Accounting Standards do not permit following method of inventory valuation:

A FIFO Correct Answer Incorrect Answer
B LIFO Correct Answer Incorrect Answer
C Average cost Correct Answer Incorrect Answer
D Weighted average Correct Answer Incorrect Answer
E Specific identification Correct Answer Incorrect Answer

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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