The LIFO method has an advantage over FIFO in that stocks are valued at
Answer Details
The LIFO (Last-In, First-Out) method has an advantage over the FIFO (First-In, First-Out) method in that stocks are valued at current prices.
In the LIFO method, the last items received into inventory are the first items sold. As a result, the cost of goods sold is based on the most recent cost of the inventory items. This means that the value of the remaining inventory on the balance sheet is based on the earlier, lower costs of the items.
In contrast, the FIFO method assumes that the first items received into inventory are the first items sold. As a result, the cost of goods sold is based on the earlier, lower costs of the inventory items. This means that the value of the remaining inventory on the balance sheet is based on the more recent, higher costs of the items.
Thus, the LIFO method has an advantage over FIFO in that it values the inventory at current prices. This can be beneficial during periods of inflation when inventory costs are rising because it can result in a lower taxable income for the business. However, it can also lead to lower reported profits and can make it more difficult to determine the true cost of goods sold.