[QUOTE=Manzar baloch;972928]
Quote:
Originally Posted by PersianGulf
In case of rising prices (inflation), LIFO will:
(a) provide lowest value of closing stock and profit
(b) provide highest value of closing stock and profit
(c) provide highest value of closing stock but lowest value of profit
(d) provide highest value of profit but lowest value of closing stock
I think option d is correct because if there is inflation it means prices are high and there is a general increase in prices irrespective of specific commodity so the profit will be automatically on higher side. as far as value of closing stock is concerned it should be lowest as it was purchased before inflation and it is recorded in books of accounts on cost basis and not on market price basis. correct me if I am wrong, please
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In my opinion it is (c) because when we assign latest value to stock (which will be higher in case of inflation because of recent purchases), Cost of goods sold will be higher which will result in lower profit.
Any comments on it will be highly appreciated...