An entity currently uses the FIFO method for inventory valuation. During a period of constantly rising prices, if the entity switches to the Periodic AVCO (Weighted Average Cost) method, what will be the effect on the Current Ratio and the Gross Profit Margin?

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Mathematics · Financial Accounting

An entity currently uses the FIFO method for inventory valuation. During a period of constantly rising prices, if the entity switches to the Periodic AVCO (Weighted Average Cost) method, what will be the effect on the Current Ratio and the Gross Profit Margin?

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Both will decrease

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Answer 1

Current Ratio will decrease, Gross Profit Margin will increase

Answer 2

Current Ratio will increase, Gross Profit Margin will decrease

Answer 3

Both will decrease

Answer 4

Both will increase

An entity currently uses the FIFO method for inventory valuation. During a period of constantly rising prices, if the entity switches to the Periodic AVCO (Weighted Average Cost) method, what will be the effect on the Current Ratio and the Gross Profit Margin?

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An entity currently uses the FIFO method for inventory valuation. During a period of constantly rising prices, if the entity switches to the Periodic AVCO (Weighted Average Cost) method, what will be the effect on the Current Ratio and the Gross Profit Margin?

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