One of the Disadvantages of the LIFO Cost Flow Assumption

question 96

Essay

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers.
Required:
a. Explain what is meant by inventory liquidation under the LIFO cost flow assumption.
a. Inventory liquidation occurs when the number of units sold during a period exceeds the number of units purchased. The result is fewer units in ending
b. Discuss why this may be a serious problem for LIFO but not for FIFO.

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Definitions:

Unsecured Credit

Credit that is issued and supported only by the borrower's creditworthiness, without any collateral.

Commercial Context

Refers to situations, activities, or transactions that are related to the commercial or business sector.

Mechanic's Lien

is a legal claim against a property for unpaid construction work or supplies, giving workers and suppliers a form of security for their investment.

Priority

In legal and financial contexts, it refers to the order of precedence in rights, claims, access, or treatment.