The correct answer is: C. provide highest value of closing stock but lowest value of profit.
FIFO stands for First-In, First-Out. It is a method of accounting for inventory that assumes that the first goods that are purchased are also the first goods that are sold. This means that the cost of goods sold is based on the cost of the oldest inventory items.
In a period of rising prices, FIFO will result in a higher value of closing stock because the most recent inventory items, which have the highest cost, will remain in inventory. This will also result in a lower value of cost of goods sold, because the cost of the oldest inventory items, which have the lowest cost, will be used to calculate cost of goods sold.
As a result, FIFO will result in a higher value of profit in a period of rising prices.
Here is a more detailed explanation of each option:
- Option A: FIFO will provide lowest value of closing stock and profit. This is incorrect because FIFO will result in a higher value of closing stock, as explained above.
- Option B: FIFO will provide highest value of closing stock and profit. This is incorrect because FIFO will result in a lower value of profit, as explained above.
- Option C: FIFO will provide highest value of closing stock but lowest value of profit. This is correct, as explained above.
- Option D: FIFO will provide highest value of profit but lowest value of closing stock. This is incorrect because FIFO will result in a higher value of closing stock, as explained above.