What is the primary reason companies choose FIFO over LIFO?
Practice Questions
1 question
Q1
What is the primary reason companies choose FIFO over LIFO?
Tax benefits
Simplicity
Better matching of current costs with revenues
Compliance with IFRS
Companies often choose FIFO over LIFO for compliance with IFRS, as LIFO is not permitted under these standards.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary reason companies choose FIFO over LIFO?
Solution: Companies often choose FIFO over LIFO for compliance with IFRS, as LIFO is not permitted under these standards.
Steps: 5
Step 1: Understand what FIFO and LIFO mean. FIFO stands for 'First In, First Out' and LIFO stands for 'Last In, First Out'.
Step 2: Know that FIFO means the oldest inventory items are sold first, while LIFO means the newest items are sold first.
Step 3: Learn about IFRS, which stands for International Financial Reporting Standards. These are rules that companies follow for financial reporting.
Step 4: Realize that LIFO is not allowed under IFRS, meaning companies cannot use it if they want to comply with these standards.
Step 5: Understand that companies choose FIFO to ensure they are following the rules set by IFRS, which helps them avoid legal issues and maintain credibility.
