Question

Compare and contrast Fifo and Lifo approaches to inventiry. show an example of how income statement and balance sheet are affected

Answer 1

First in first out methods of inventory will be having latest acquired goods in the unsold inventory whereas last in first out method of inventory will be having earliest acquired goods in the unsold inventory.

First in first out method is not restricted by IFRS whereas last in first out method will be restricted by the IFRS.

there is a low record maintenance in first and first out method whereas there is a high requirement of maintenance of record in last in first out method

The preference for using first in first out method is higher and the preference for using last in first out method is slower.

Income statements and the balance sheet statements will be affected by both the method because in income statement as implementation of first in first out will be increasing the overall net profits and it would be leading to higher taxes whereas implementation of last in first out method would be leading to higher cost and profit for the company and it would be leading to lower profits resulting into low taxation for the company. Closing inventory will be rated higher in balance sheet in first in first out method and closing inventory on the balance sheet will be lower in last in first out method.