Question

1. In order to apply the matching concept, inventory costing methods, once selected, cannot be changed to an alternative method.

True/False?

2.The use of the FIFO method of inventory valuation

• results in a highest reported net income in a time of falling prices.

• results in a matching of current inventory costs against sales revenue.

• results in the most current costs in ending inventory.

• results in a lowest reported net income in a time of rising prices.

Answer 1

Answers

• Answer #1
  FALSE.
  Inventory costing method once selected can be changed to an alternative method at later point.
  However, the same is done by adjusting the prior net incomes.
• Answer #2

Correct Answer = Option #3: FIFO results in the most current costs in ending inventory.
This is because under FIFO, it is assumed that inventory are sold on first in basis. Hence earliest inventory are sold first.
This also means that ending inventory include the latest purchased units.
Latest purchased units represent most current cost.
Hence, ending inventory would be at the most current costs.