Question

It is argued that LIFO should not be allowed to compute net income because a. b. C. it does not match costs to revenues, especially when there is inflation in the economy. it overstates balance sheet inventory. it understates cost of goods sold when prices are rising and therefore makes US companies' results look better than foreign companies' results which can only use FIFO. it causes profits to be understated when prices are rising and allows a company to dodge taxes. d.

Answer 1

Option d. It causes profit to be understated when prices are rising and allows a company to dodge taxes.

is Right answer.

This is because LIFO assumes that inventory will be consumed in the production process. As a result higher value inventory will be included in cost of sales figure which will show in larger cost and ultimately lesser profits and lesser tax.