Question

On January 1, 2022, Bryce Inc. changed from the LIFO method of inventory pricing to the FIFO method. Explain how this change in accounting principle should be treated in the company’s financial statements.

Answer 1

Ans. :-

• There are two mainly adopted methods for inventory valuation i.e. LIFO (Last-in-first-out) and FIFO (First-in-first-out). Usually, changing the method of inventory valuation from LIFO to FIFO might result into the Higher reported profits for the organization.
• Hence, The change in the method of Inventory valuation is also considered as a change in accounting principle.
• Sometimes, changes in the accounting principle might be misleading and confusing to the various stake holders and the users of the financial statements. Hence, it is necessary that whenever, there is any change in the accounting principle, the company must provide required disclosures and also comply with the reporting requirements in that regard.
• Whenever there is a change in the accounting principles, the company must apply such change retrospectively to all the prior reporting periods.
• Also the nature of any change in the accounting principle must be disclosed in the footnotes to the financial statements.
• Financial statements should also include the rationale or justification for any such change in the accounting principle.