CHAPTER 1: Material Advantages of FIFO LIFO & CWACO/AVCO

FIFO
NO
1

Advantages
Simple and easy to understand

Earliest Material purchased are issued first until exhausted

Acceptable by tax authorities & allowed by IAS 2 (international accounting

standards)

Method usually for perishable goods

LIFO
NO
1

Advantages
Latest materials are issued out first

Materials are issued at current market price

Production will be closely related to current price levels

Better management of current earning by matching most recent cost against most recent
price

Relief from tax during inflation when prices are rising in the USA only

The most frequently discussed difference between IFRS / IAS and U.S.
GAAP is in the treatment of inventory costing. U.S. GAAP allows the LIFO
assumption, which expenses the most recently purchased inventory (last
in) as a cost of goods sold expense first (first out), to be used for
inventory costing

CWACO / AVCO
NO
1

Advantages
Evens out fluctuation in price

Easier to be computerized as compared to other methods

Acceptable by tax authorities & allowed by IAS 2 (international accounting

standards)