JAMB Accounts Principles of Accounts 2017 Paper

Concept:LIFO matches the latest, higher costs with current sales during rising prices, giving a lower reported profit.Explanation:When prices are rising, goods purchased most recently are the most expensive.Under LIFO, the last items bought are assumed to be the first items sold.So, cost of goods sold is based on these latest high prices.This results in a lower profit than under FIFO or the average methods.A lower profit in the period reduces income tax liability.The remaining stock is made up of older, cheaper goods, so it may not reflect current market value.Nevertheless, LIFO is considered appropriate during inflation because current costs are matched with current revenue.Answer:A. Last in First Out (LIFO).