Under IFRS, is LIFO permitted?

Under IFRS, is LIFO permitted?

• A. LIFO is allowed under IFRS.
• B. LIFO is not permitted under IFRS.
• C. IFRS mandates FIFO only.
• D. IFRS uses weighted average only.

Answer: (B)

Under IFRS, the way inventory costs are measured must use a cost formula that is chosen and applied consistently, with the two accepted methods being FIFO and weighted average. LIFO is not allowed. The reason is that LIFO can distort earnings and asset values, especially during inflation, by pushing older, cheaper costs into cost of goods sold and leaving newer, higher costs in ending inventory. This does not reliably reflect how goods flow or the current economic reality, which IFRS aims to capture. IAS 2 Inventories explicitly prohibits LIFO to promote consistency and comparability. For contrast, U.S. GAAP allows LIFO, which is why this difference often matters across standards.

Under IFRS, the way inventory costs are measured must use a cost formula that is chosen and applied consistently, with the two accepted methods being FIFO and weighted average. LIFO is not allowed. The reason is that LIFO can distort earnings and asset values, especially during inflation, by pushing older, cheaper costs into cost of goods sold and leaving newer, higher costs in ending inventory. This does not reliably reflect how goods flow or the current economic reality, which IFRS aims to capture. IAS 2 Inventories explicitly prohibits LIFO to promote consistency and comparability. For contrast, U.S. GAAP allows LIFO, which is why this difference often matters across standards.