What is the primary disadvantage of using the LIFO method?
Practice Questions
1 question
Q1
What is the primary disadvantage of using the LIFO method?
It can lead to inventory liquidation.
It is more complex to implement.
It does not match current costs with revenues.
It is not allowed under IFRS.
LIFO is not allowed under IFRS, which can be a significant disadvantage for companies operating internationally.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary disadvantage of using the LIFO method?
Solution: LIFO is not allowed under IFRS, which can be a significant disadvantage for companies operating internationally.
Steps: 5
Step 1: Understand what LIFO means. LIFO stands for 'Last In, First Out', which is an inventory valuation method.
Step 2: Know that LIFO is used to calculate the cost of goods sold by assuming that the most recently purchased items are sold first.
Step 3: Learn about IFRS, which stands for 'International Financial Reporting Standards'. These are rules for financial reporting used by many countries.
Step 4: Recognize that LIFO is not allowed under IFRS. This means companies that follow IFRS cannot use the LIFO method for their inventory.
Step 5: Realize that this can be a big problem for companies that operate in multiple countries. They may have to change their accounting methods, which can be complicated and costly.
