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1. Tax minimization
2. Income smoothing
3. Profit maximization
4. Accurate reporting
Using FIFO method usually \\used in FMCG and Pharmaceutical industries to help used old items before expiring. The following results will be found in this case;
1- considering lower cost for purchases
2- Obtaining bigger profit
3- Displaying at the Balance-Sheet inventory value close to the current situation of market.
Accuracy of Accounting dose not related directly with the issue.
Accurate Reporting
Because as a human nature Use older then newest because every thing has a life.
4. Accurate Reporting
As per FIFO, the stock which received first should be utilised first.
Answer is : 4. Accurate reporting.
FIFO ensures that the ending inventory values on the balance sheet are indicative of current market prices for the items. As items purchased at earlier dates are pulled from inventory for production or retail sale, the inventory on the books at the end of the month consists of more recently purchased inventory. This ensures that the ending inventory on the balance sheet is reflective of current market prices.
