When to use which method with example

Question

Accepted Answer

Different methods are used for different tax calculations. Examples include FIFO, LIFO, and specific identification.

FIFO (First In, First Out) is used when the oldest inventory is sold first.
LIFO (Last In, First Out) is used when the newest inventory is sold first.
Specific identification is used when each item in inventory is individually identified and tracked.
Depreciation methods include straight-line, double-declining balance, and units-of-production.
Choosing the right method can affect tax liability and financial statements.
Example: A company using FIFO sells 100 units of inventory. The cost of the oldest 100 units is used to calculate the cost of goods sold.
Example: A company using LIFO sells 100 units of inventory. The cost of the newest 100 units is used to calculate the cost of goods sold.
Example: A company using specific identification sells 100 units of inventory. The cost of the specific 100 units sold is used to calculate the cost of goods sold.

Top PKF Sridhar & Santhanam LLP, Chartered Accountants Taxation Associate interview questions & answers