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International Financial Reporting Standards (IFRS) do not permitcompanies to use the LIFO method for...

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Accounting

International Financial Reporting Standards (IFRS) do not permitcompanies to use the LIFO method for inventory accounting. In itsform 20-F, CNH discloses that it uses the first-in-first-out (FIFO)method to accounting for its inventory. Assume that prices thatCaterpillar and CNH pay for inventory typically increase over time.In general terms, how does each company’s inventory accountingmethod affect its balance sheet and income statement? How would thechoice between LIFO and FIFO affect the statement of cash flows, ifat all? What if prices typically decrease over time?

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4.1 Ratings (466 Votes)
FIFO METHOD OF VALUATION LIFO CLOSING INVENTORY VALUED AT EARLIER PURCHASES MADE LATEST PURCHASE MADE INVENTORY WOULD REPRESENT THE LATESTS STOCK INVENTORY WOULD REPRESENT THE OLDEST STOCK SALES ASSUMING GOODS PURCHASED FIRST ARE SOLD FIRST AND LATEST PURCHASES LEFT AT THE    See Answer
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In: AccountingInternational Financial Reporting Standards (IFRS) do not permitcompanies to use the LIFO method for inventory...International Financial Reporting Standards (IFRS) do not permitcompanies to use the LIFO method for inventory accounting. In itsform 20-F, CNH discloses that it uses the first-in-first-out (FIFO)method to accounting for its inventory. Assume that prices thatCaterpillar and CNH pay for inventory typically increase over time.In general terms, how does each company’s inventory accountingmethod affect its balance sheet and income statement? How would thechoice between LIFO and FIFO affect the statement of cash flows, ifat all? What if prices typically decrease over time?

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