JAMB Accounting 2010 Objective — Question 20

Question 20 of 50 from the Joint Admissions and Matriculation Board (JAMB) Accounting 2010 Objective paper, with the correct answer and a full explanation.

20. If a company values its stock in the period of rising prices using LIFO method, there is a tendency for it to A. have a high cost of goods sold B. have a high gross profit C. pay higher income tax D. have a higher value for closing stock

A. have a high cost of goods sold
B. have a high gross profitCorrect
C. pay higher income tax
D. have a higher value for closing stock

Explanation

Under LIFO in a period of rising prices, the most recently purchased (higher-cost) goods are matched against sales, so the closing stock is undervalued, giving a comparatively higher gross profit figure among the given options.

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