Certified Materials and Resource Professional Practice

The choice indicating that the ending inventory reflects current replacement cost is notable because the FIFO (First In First Out) method values inventory in a way that the oldest costs are matched against current revenues. As costs of goods sold (COGS) are based on the cost of the oldest inventory, the remaining inventory on hand—comprising the more recently acquired items—will tend to reflect higher and more current replacement costs.

This method becomes particularly advantageous in periods of rising prices, where older inventory costs are lower than the current market values. As a result, the ending inventory, which consists of the most recently acquired units, will provide a more accurate and realistic picture of what it would cost to replace that inventory today.

Other options do not align as closely with this benefit: while maximization of tax deductions can be achieved through various methods depending on circumstances, it is not a unique feature of FIFO. Financial reporting complications might be minimized, but it is not a definitive outcome of using FIFO compared to other methods. Finally, increasing inventory levels is not inherently a result of FIFO as it pertains more to inventory management practices than valuation methods.