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Give arguments in favor of following statement.

"FIFO method for inventory valuation may increase income tax due as well as showing true financial position of a business with respect to inventory during the period of rising prices."


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Solution : just for idea (dont copy paste)
As in Period of Price rising, current market price of the inventory will be higher than the previous market price on which inventory was purchased by the business. If using FIFO method the lower value of inventry will be rocorded then the value of inventory consumed will not meet the current market position. As a result all the Expenses shown in the financial statements will be lower, profit will be higher which may cause increase in income tax due and the ending inventry will show a higher value.
Just as a hint we've to determine if the price of the inventory being used is going up or down. This is crucial in deciding whether FIFO is appropriate for the organization. If prices are going up, the FIFO method works. If not, it may be wise to consider other options.
another idea: another solution : This case shows that the current market price is higher than the previous price rather the tax will be increased but the net profit according to FIFO method, the lower value counted of the current stock doesn't affect the market position and expense cost on the stock will be lower and profit will be higher. As the current stock is valued at recent most prices, the current assets of the company have the latest assessed values.
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EXPLAIN KER DO URDU MEIN HUM KHUD KER LAY GAY..
Greet That's great. Tum b angraiz nahi ho or main b angraiz nahi hoon. plz send me solution of gdb mgt101. plz i shall be very thankful to you for you this act of kindness.
As in Period of Price rising, current market price of the inventory will be higher than the
previous market price on which inventory was purchased by the business. If using FIFO method the lower value of inventry will be rocorded then the value of
inventory consumed will not meet the current market position. As a result all the Expenses
shown in the financial statements will be lower, profit will be higher which may cause increase in income tax due and the ending inventry will show a higher value.
same reply:P tariq bhai:P
As we know, In FIFO method cost of goods sold will have a lower value and the profitability of the business will become higher.
Hence, higher profit rate will increase in Income tax due and the ending inventory will show a higher value.
Since FIFO assumes that the oldest inventory is always sold first, the valuation of inventory still on hand is at the most recent price. Assuming inflation, this will mean that cost of goods sold will be at its lowest possible amount. Therefore, a major advantage of FIFO is that it has the effect of maximizing net income within an inflationary environment. The downside of that effect is that income taxes will be the greatest.
yara FIFO ki wajah se net profit jb high ho ga tu ziada profit pe ziada e tax bne ga na.. itna mushkil q likhte ho saf saf likha kro hum bachy tens ho jate hain itna lamba ans daikh k.lol
This case shows that the current market price is higher than the previous price rather the tax will be increased but the net profit according to FIFO method, the lower value counted of the current stock doesn't affect the market position and expense cost on the stock belower and profit will be higher. As the current stock is valued at recent most prices, the current assets of the company have the latest assessed values.

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