Assuming some inflation in the economy, which firm will have “higher quality earnings? a. LIFO Inventory...

Assuming some inflation in the economy, which firm will have “higher quality earnings?

a.	LIFO Inventory Accounting and Straight Line Depreciation
b.	FIFO Inventory Accounting and Straight Line Depreciation
c.	LIFO Inventory Accounting and Double Declining Balance Depreciation
d.	FIFO Inventory Accounting and Double Declining Balance Depreciation

Solutions

Expert Solution

Answer- In case of inflation in the Economy the goods purchased at a later date(ie during Inflation) are expensive than the goods purchased at a Earlier date(ie Before Inflation)

Hence Under LIFO method the Goods purchased will be higher in costing than FIFO Method as under LIFO Method the Goods purchased at a later date are sold first. Hence the LIFO Method will result in Lesser Earning as compared to the FIFO Method due to Higher costing of Goods Purchased. FIFO Method will result in Higher earnings.

Under Double Declining Method the amount of depreciation will be Higher as compared to the SLM Method as under Double declining method the rate of Depreciation is 200%. Hence the SLM Method will result in Higher earnings due to lesser amount of Depreciation.

So collectively FIFO Method and SLM Method will result in Higher Earnings.

Hence the Correct answer is B)_FIFO Inventory accounting and Straight Line Depreciation.

ekkarill92 answered 1 year ago

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