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SSC Financial and Cost Accounting P-1 QUESTION #9628
Question 1
In the LIFO method of stock valuation compared to FIFO, which of the following is correct during a period of rising prices?
  • LIFO produces a higher closing stock value and lower cost of sales
  • LIFO produces a lower gross profit and a lower closing stock value than FIFO✔️
  • LIFO produces the same gross profit as FIFO because total cost is the same
  • LIFO and FIFO only differ in the treatment of opening stock
Correct Answer Explanation
Under rising prices, LIFO assigns the most recent (higher) costs to cost of sales, resulting in a higher COGS and thus lower gross profit. Conversely, the older (lower) costs remain in closing stock, giving a lower closing stock value. FIFO does the opposite: lower costs to COGS, higher gross profit, and higher closing stock.