What are the advantage and disadvantages of LIFO?

(1). LIFO matches most recent costs against current revenues: The LIFO method provides a better measurement of current earnings by matching most recent costs against current revenues. The non-LIFO methods (such as FIFO method) match old costs against current revenues.

What is the disadvantage of FIFO method?

The first-in, first-out (FIFO) accounting method has two key disadvantages. It tends to overstate gross margin, particularly during periods of high inflation, which creates misleading financial statements. Costs seem lower than they actually are, and gains seem higher than they actually are.

What is the advantages of LIFO?

The biggest benefit of LIFO is a tax advantage. During times of inflation, LIFO results in a higher cost of goods sold and a lower balance of remaining inventory. A higher cost of goods sold means lower net income, which results in a smaller tax liability.

What are the advantages of using FIFO?

Disadvantages of FIFO method: FIFO may not be a suitable measure in times of “hyper inflation”. In such times there exist no reasonable pattern of inflation and prices of goods could inflate drastically.

What is the advantage of using FIFO method?

Advantages and disadvantages of FIFO The FIFO method has four major advantages: (1) it is easy to apply, (2) the assumed flow of costs corresponds with the normal physical flow of goods, (3) no manipulation of income is possible, and (4) the balance sheet amount for inventory is likely to approximate the current market …

Which of the following is a disadvantage of using LIFO method?

Disadvantages of Using LIFO in Your Warehouse LIFO is more difficult to maintain than FIFO because it can result in older inventory never being shipped or sold. LIFO also results in more complex records and accounting practices because the unsold inventory costs do not leave the accounting system.

What is FIFO advantages and disadvantages?

All the advantages of FIFO occur because when a company sells goods, the first costs it removes from inventory are the oldest unit costs. The disadvantages of FIFO include (1) the recognition of paper profits and (2) a heavier tax burden if used for tax purposes in periods of inflation.

What are the disadvantages of LIFO method?

2 Disadvantages of LIFO Valuation Method Like FIFO, use of LIFO can get clumsy, complex and difficult to manage the inventory and respective prices of each batch if entity places many order for goods that have fluctuating price. Unlike FIFO it does not correspond with the normal physical flow of inventory.

What is FIFO and why is it important?

FIFO ( First in and First Out is a method in warehouse management wherein it is more applicable on foods, or consumable items we are maintaining in our respective warehouses. FIFO is a process we issue or deliver what is we received from production or suppliers.

How to calculate LIFO and FIFO?

To calculate FIFO (First-In, First Out) determine the cost of your oldest inventory and multiply that cost by the amount of inventory sold, whereas to calculate LIFO (Last-in, First-Out) determine the cost of your most recent inventory and multiply it by the amount of inventory sold.

Why use LIFO?

LIFO is used by firms to lower their tax liabilities at the expense of an outdated inventory value as reflected on the balance sheet . This raises the possibility of a heavily outdated and subsequently useless inventory valuation.

What are the advantages and disadvantages of a computer network?

The advantages of computer networks are file sharing, resource sharing which decreases costs, user flexibility, and increased storage capacity due to the many computers present. The disadvantages include lack of independence by client users, security concerns, and threats by malware and viruses.