CFA Level 1 QUESTIONS and ANSWERS — Analysis of Inventories — Financial Statement Analysis PART 2

The Effects of Inflation and Deflation on Inventories, Costs of Sales, and Gross Margin | Financial Statement Analysis | Analysis of Inventories 2026 Practice Questions for Inventory costing methods, LIFO and FIFO inventory, inventory valuation method. How to solve Problems. Exercise for Mock Exam. CFA Level 1 Most practice questions are either unnecessarily complex or too simple. At 2Mandarin, we calibrate every question to align strictly with the CFA Level 1 Curriculum. Our goal is to match the curriculum-aligned difficulty and focus of the Learning Outcome Statements (LOS), giving you a realistic preview of what to expect on exam day. CONTENTS 0:00 Topic 3: THE EFFECTS OF INFLATION AND DEFLATION ON INVENTORIES, COSTS OF SALES, AND GROSS MARGIN 0:10 T3 Question 1 0:28 T3 Answer 1 — How inventory costing methods (FIFO vs. LIFO) reflect current costs during inflation 2:02 T3 Question 2 2:19 T3 Answer 2 — How inventory costing methods (FIFO vs. LIFO) value ending inventory during inflation 3:49 T3 Question 3 4:08 T3 Answer 3 — How inventory costing methods affect reported profit in a deflationary environment 5:51 T3 Question 4 6:13 T3 Answer 4 — The effect of inventory costing methods (FIFO vs. WAC) on the current ratio during inflation 7:49 T3 Question 5 8:08 T3 Answer 5 — Differential impact of the LIFO and FIFO inventory methods during a period of rising prices 9:49 T3 Question 6 10:16 T3 Answer 6 — Differential impact of LIFO and FIFO on the Cost of Sales (COGS) during rising prices 11:40 T3 Question 7 11:58 T3 Answer 7 — Effects of the LIFO and FIFO inventory methods during a period of rising prices 13:33 T3 Question 8 13:51 T3 Answer 8 — Which inventory valuation method reports ending inventory closest to its current economic value during inflation 15:46 Scenario 15:51 T3 Question 9 16:19 T3 Answer 9 — Which inventory valuation method reports ending inventory closest to its current economic value during inflation 17:32 T3 Question 10 18:01 T3 Answer 10 — Impact of the FIFO method during a period of rising costs 19:03 Scenario 19:08 T3 Question 11 20:02 T3 Answer 11 — Impact of the FIFO method during a period of rising costs 20:30 T3 Question 12 20:48 T3 Answer 12 — Comparing gross profit margins under different price scenarios 22:02 Scenario 22:07 T3 Question 13 22:24 T3 Answer 13 — Effect of inventory method on a solvency ratio in a deflationary scenario 23:41 T3 Question 14 24:07 T3 Answer 14 — How different costing methods value inventory during price changes 26:02 T3 Question 15 26:21 T3 Answer 15 — Interpreting the change in the LIFO reserve 27:36 T3 Question 16 27:51 T3 Answer 16 — Comparing specific ratios between FIFO and LIFO during inflation 29:11 T3 Question 17 29:26 T3 Answer 17 — The overall "look" of a LIFO company during inflation 31:26 Topic 4: PRESENTATION AND DISCLOSURE 31:32 T4 Question 1 31:53 T4 Answer 1 — Required inventory disclosures under IFRS vs. US GAAP 33:08 Scenario 33:13 T4 Question 2 33:45 T4 Answer 2 — Required inventory disclosures under IFRS vs. US GAAP 34:13 T4 Question 3 34:42 T4 Answer 3 — Key differences between IFRS and US GAAP (LIFO) 36:28 T4 Question 4 36:43 T4 Answer 4 — The impact of disallowing LIFO on financial ratios 38:12 T4 Question 5 38:37 T4 Answer 5 — Inferring business conditions from changes in inventory components Disclaimer: CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by 2Mandarin. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. #financialstatementanalysis #cfalevel1questions #2Mandarin