CFAI Text EOC reading#20 Q#15

CFA Level II
#1

I am not convinced with the explanation given in CFAI text for this question. Could someone provide more explanation about why A is corrent? My reasoning for this question was, say US SEC repeals FIFO as acceptable method for tax purposes, this action doesn’t make ZP change its accounting policy regarding inventory at some point after 2009 because ZP is only using LIFO and WAC. Even if company were using FIFO for financial accounting, how does change in the rule for tax accounting affect valuation methods in financial accounting?

However, for option A, say the statement as given were true and currently ZP uses two accounting methods, WAC and LIFO, ZP will be forced to incorporate same valuation methods for all inventories once SEC mandates that companies use same inventory valuation methods for all inventories.

#2

Don’t have books with me but I remember that if you use LIFO, you have to use it for financial and tax accounting. not sure if that affects the question or not…

#3

Hi Kia, I agree that under LIFO, financial and tax accounting valuation methods should be same. But my example still stands because in my hypothetical scenario, I am repealing FIFO.Having this repealed, ZP should still be able to use LIFO for both tax and financing purposes.