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In a period of deflation, which inventory method would likely result in higher e
In a period of deflation, which inventory method would likely result in higher ending inventory values?
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Practice Questions
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Q1
In a period of deflation, which inventory method would likely result in higher ending inventory values?
FIFO
LIFO
Weighted Average Cost
All methods equally
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In deflation, FIFO will result in higher ending inventory values as it accounts for the older, cheaper costs first.
Questions & Step-by-step Solutions
1 item
Q
Q: In a period of deflation, which inventory method would likely result in higher ending inventory values?
Solution:
In deflation, FIFO will result in higher ending inventory values as it accounts for the older, cheaper costs first.
Steps: 6
Show Steps
Step 1: Understand what deflation means. Deflation is when prices of goods decrease over time.
Step 2: Learn about inventory methods. FIFO stands for 'First In, First Out', meaning the oldest inventory costs are used first.
Step 3: In a deflationary period, older inventory costs are lower than newer inventory costs.
Step 4: When using FIFO during deflation, the company sells the older, cheaper inventory first.
Step 5: This means the remaining inventory (the newer, more expensive items) will have a higher value.
Step 6: Therefore, FIFO will result in higher ending inventory values in a deflationary period.
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