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There are different methods you could use for accounting for inventories. In a period where the...

There are different methods you could use for accounting for inventories. In a period where the raw material or merchandise inventory prices are declining, which method would be most appropriate in order to minimize your taxable income and why?

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Expert Solution

First in First Out (FIFO) is the appropriate method of inventory when inventory prices are declining. It is due to, in the declining prices situation, the oldest inventory items have the highest costs. It would result in the highest cost of goods sold and lowest taxable income.

In the contrary, when the inventory prices are increasing, Last in First Out (LIFO) is used to minimize the taxable income.

ekkarill92 answered 2 years ago
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