A taxpayer who has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold should use either a weighted average approach or a LIFO approach. True / False.

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Business

Camron

24 April, 06:56

A taxpayer who has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold should use either a weighted average approach or a LIFO approach. True / False.

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Vernon · Answer 1

False

Explanation:

When the taxpayer has purchased several lots of stock on different dates at different prices and cannot identify the lot of stock that is being sold. In such a situation the stocks are not identifiable, therefore, both the LIFO and FIFO methods of inventory valuation cannot be used. This is because both of these methods require identification of purchased lots of stocks to determine from which lots the goods are sold first. In such a situation only the Weighted average method (AVCO) can be used because it does not require identification of the stock lot from which the goods are sold.