Inventory
Goods held for sale in the ordinary course of business, valued using FIFO, LIFO, weighted average, or specific identification.
The classic item gives you LIFO financials plus the LIFO reserve and asks you to restate to FIFO before computing a ratio. The “tell”: you convert the balance sheet by adding the reserve to LIFO inventory, but on the income statement you go the other way — FIFO COGS = LIFO COGS minus the change in the LIFO reserve — and the change, not the level, is what flows through. Watch the retained-earnings adjustment too: add the reserve net of the tax effect (reserve × (1 − t)). When prices are falling, every inflationary result reverses, so read the cost-trend cue first.
The trap is conflating inventory accounting with the IFRS 15 / ASC 606 timing that governs revenue, or with the capitalize-versus-expense choice that drives expenses — those decide when a cost hits, not which units leave first. Also remember IFRS uses lower of cost or net realizable value and permits write-up reversals up to original cost; US GAAP applies lower of cost and NRV to FIFO/average-cost (lower of cost or market for LIFO/retail) but bars reversals. Memory hook: “reserve adds to the balance, change subtracts from COGS.”
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