Question

How mighty a company choose the use of one of the 4 inventory valuation methods to strategize and or manipulate their earnings?

Answer 1

The 4 inventory valuation method .

LIFO,

FIFO

WEIGHTED AVERAGE VALUATION, AND

SPECIFIC IDENTITY METHOD

these 4 method allowed by U.S GAAP.

Under LIFO method inventory purchase at last will sold 1st due to that cost of goods sold increase and earning increase . It is best method to use in inflation to avoid over income and in deflation it is a best method to show earnings .

FIFO, method is used for inventory VALUATION under that method inventory purchase 1st will sold 1st . Under FIFO method profit is always higher except deflation . That is best method to use avoid over profit on deflation and if company want to show profit it can be used in inflation and normal market conditions.

Weighted average valuation method is used average price under weighted method profit shown at a average not to low or high under inflation or deflation.

Specific identity method is used for calculate ending inventory at a particular items it can also used for specific goods. When company have variety of goods .