Advantages and disadvantages of fifo, Accounting Basics

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Q. Advantages and Disadvantages of FIFO?

FIFO: Advantages (a) FIFO is easy to apply (b) the assumed flow of costs habitually corresponds with the normal physical flow of goods (c) no manipulation of income is possible and (d) the balance sheet amount for inventory is likely to approximate the current market value.

Disadvantages (a) Recognizes paper profits and (b) tax burden is heavier if used for tax purposes when prices are rising.

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