The Use of Alternative Accounting Principles

question 134

Multiple Choice

The use of alternative accounting principles

• A) is not a problem in ratio analysis because the notes to the statements disclose the principles used.
• B) may be a problem in ratio analysis even if disclosed.
• C) is not a problem in ratio analysis since eventually all principles will lead to the same end.
• D) is only a problem in ratio analysis with respect to inventory.

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Definitions:

FIFO

"First-In, First-Out," an inventory valuation method where the cost of goods sold is based on the oldest inventory items.

Lower Of Cost

Lower of Cost or Market (LCM) is an accounting principle that values inventory at the lower of its historical cost or current market value.

Inventory Value

The total cost or market value of all the goods and materials held by a company for the purpose of resale or production.

Market Decline

A decrease in the overall value of a market, evidenced by falling asset prices and often associated with economic downturns.