A company switches from LIFO to FIFO, which of these elements would be the least likely impacted?

CFA Level I
#1

Hey everyone,

A) Net revenue
B) COGS
C) Current assets

To me, all of these elements would be directly impacted by switching from LIFO to FIFO reporting. However, correct answer is A, and here is why:

The change from FIFO to LIFO will least likely impact the company’s reports net revenue because flow assumptions have no impact on the way sales are recorded and reported.

Since Net revenue = Gross revenue - COGS, and since COGS are impacted, then to me, Net revenue is also impacted. Maybe there is a typo in the question and they wanted to say “Gross profit”?

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#2

Greetings buddy!

Net revenue = gross revenue minus your returns/discounts/allowances

It’s your typical revenue with minor adjustments due to promotions you offer, product returns/refunds, etc. It can also be called net sales.

Gross margin = net revenue minus COGS

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#3

Greetings dear cat,
Thanks a lot!

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#4

FIFO and LIFO are ways to value inventory. Clearly how inventory is valued impacts Cost of Goods Sold (COGS). FIFO and LIFO have zero to do with Net Revenue, which precedes COGS on the Income Statement, and that is why the correct answer is A. . .and only A.

#5

Not true, Greybeard. Gross margin is a %. You can’t subtract a % from a real number. FWIW, Net Revenue (in whatever currency) minus COGS (in whatever currency) = Gross PROFIT (in whatever currency), which is not the same as Gross MARGIN (which is in %).

Hope this helps.

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#6

You are right - gross profit! Cheers

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#7

thanks

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