Inventory Cost Flow
Methods for assigning cost to inventory and cost of goods sold, such as FIFO, LIFO, and weighted average.
FAR loves a computational item that hands you the same purchase data and asks for ending inventory or COGS under FIFO, LIFO, and weighted average, so the “tell” is which layer you cost: FIFO ending inventory holds the newest costs, LIFO holds the oldest, and weighted average divides total cost of goods available by total units. The subtler trap is subsequent measurement under ASC 330: FIFO and weighted average write down to lower of cost or net realizable value (LCNRV) since ASU 2015-11, while LIFO and the retail method still use lower of cost or market (LCM) — where “market” is replacement cost, capped by a ceiling (NRV) and floored at NRV minus normal profit. Pick the wrong rule and the whole question fails.
Don’t confuse cost flow with physical flow, and remember the LIFO conformity rule (IRC §472): use LIFO for tax and you must report it on the books too. Memory hook: FIFO “First-In” keeps the Freshest costs in inventory, so in rising prices it inflates reported assets.
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