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Question:

From the point of view of a financial analyst, when evaluating companies that use different inventory cost assumptions, in a period of:

A decreasing prices, FIFO inventory is preferred to LIFO inventory.
Explaination

The most useful estimates of inventory and cost of sales are those that best approximate current cost. Whether prices are increasing or decreasing, FIFO provides a better estimate of inventory values, and LIFO provides a better estimate of cost of sales. If prices are stable, there is no difference between LIFO and FIFO estimates of inventory or cost of sales.