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Question 3 Under U.S. GAAP, application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and statement of

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Question 3 Under U.S. GAAP, application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and statement of cash flows. Required: (a) Assuming an inflationary economic environment, compare and contrast the effect of the two methods on each of the above mentioned financial statements and determine the advantages and disadvantages of each method. (14 marks) (b) Assuming an inflationary economic environment, evaluate the effects of the change from LIFO to FIFO on the following ratios: (1) Current ratio, (2) Total asset turnover ratio, and (3) Debt to equity ratio. (6 marks) (Total 20 marks)

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