Question

Which of the following methods for determining inventory cost is not allowed by GAAP?

1) FIFO
2) LIFO
3) Standard cost
4) Average cost

Answer 1

The LIFO (Last In, First Out) method is not allowed by international accounting standards, and while allowed under U.S. GAAP, it is not permissible under IFRS, affecting U.S. companies that report internationally.

Step-by-step explanation:

The question 'Which of the following methods for determining inventory cost is not allowed by GAAP?' pertains to the accounting methods used for valuating inventory in financial statements. The four methods listed are First In, First Out (FIFO), Last In, First Out (LIFO), Standard Cost, and Average Cost.

Under Generally Accepted Accounting Principles (GAAP), the LIFO (Last In, First Out) method is not allowed for companies that produce their financial statements according to international standards. While LIFO is permissible under U.S. GAAP, it has not been allowed by the International Financial Reporting Standards (IFRS), which impacts U.S. companies that have subsidiaries in other countries or those listed on foreign exchanges that require IFRS compliance.