Question on: JAMB Accounting - 2017
In the period of rising prices, which method of stock valuation is most appropriate?
A
Last in First Out
B
weighted average
C
First in First Out
D
Simple average
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Correct Option: A
In a period of rising prices:
- Last In, First Out (LIFO) method will result in the cost of goods sold being based on the most recent (higher) prices. This leads to a higher cost of goods sold, a lower profit, and thus, a lower tax liability.
- First In, First Out (FIFO) method will result in the cost of goods sold being based on the older (lower) prices. This leads to a lower cost of goods sold, a higher profit, and thus, a higher tax liability.
- Weighted Average is an averaging method that falls between LIFO and FIFO. It will generally result in a profit figure that is between the profit that would result from using LIFO and FIFO.
- Simple average is not a proper
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