Question

All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the: (a) definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. (b) average-cost method is prohibited under IFRS. (c) inventory basis determination for write-downs differs between GAAP and IFRS. (d) guidelines are more principles-based under IFRS than they are under GAAP.

Short answer

The correct option is “b.”

Step-by-step solution

LIFO cost flow assumption

(b) Under IFRS, the average cost method is prohibited, and the LIFO cost assumption is prohibited under IFRS.

Explanation of wrong options

(a) Under GAAP and IFRS, the definition of lower-of-cost-or-market is the same.

(c) Both GAAP and IFRS have a different basis for the write-down of inventories.

(d) Yes, IFRS is more principle-based than GAAP.

Thus, the correct option is the second one.