Section 2: 30–40%2C
Inventory
Exam insight
Inventory is one of the most calculation-heavy MCQ topics in FAR, spanning FIFO, LIFO, weighted average, and LCNRV. A common setup is a LIFO liquidation that asks about gross profit. When LIFO layers run out, older (lower) costs flow to COGS and push gross profit up, which is easy to miss. One more thing to lock in, LCNRV is applied item by item, not to the inventory as a whole.
What AICPA wants you to know
- 1Calculate ending inventory and COGS under FIFO, LIFO, and weighted-average
- 2Apply the lower of cost or net realizable value (LCNRV) rule
- 3Analyze the impact of inventory errors on net income and retained earnings
- 4Identify what costs are included in inventory (product costs vs. period costs)
- 5Understand the LIFO reserve and LIFO liquidation
Patterns in this topic
The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.
Exam tip
Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.