5 Questions
What change in accounting policy is the business intending to make?
Switch from AVCO to FIFO method
How are prices of goods expected to change during the forthcoming year?
Expected to rise
If prices rise during the forthcoming year, what effect will it have on profit and closing inventories under the FIFO method?
Increase in profit and an increase in the value of the closing inventories
What is the likely effect of a switch from AVCO to FIFO with rising prices on profit?
Increase in profit
Under the FIFO method, what happens when prices rise?
Profit increases and closing inventories increase
Test your knowledge on the impact of changing accounting policies from AVCO to FIFO method in inventory costing, especially when prices of goods purchased are expected to rise. Identify the effects on profit and the value of closing inventories.
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