FIFO (First-In-First-Out) method assumes that the first goods purchased are the first goods sold. During inflation, FIFO results in lower cost of goods sold and higher profits because oldest (cheaper) costs are matched with sales. The closing inventory reflects current market prices, making the balance sheet more realistic. FIFO is widely accepted by tax authorities and is most appropriate for perishable goods. Calculation: Cost of goods sold = Opening inventory + Purchases - Closing inventory, where closing inventory is based on most recent purchase prices. When recording journal entries, cost of goods sold uses oldest purchase prices. FIFO provides COGS using oldest purchase prices; inventory on balance sheet uses latest prices. This method requires tracking purchase prices chronologically. FIFO prevents arbitrary allocation of costs and results in inventory valuation closer to current market value. During price deflation, FIFO results in higher COGS and lower closing inventory value. The method is intuitive and easy to understand and apply. Under IAS-2, FIFO is an acceptable inventory valuation method. It's particularly suitable for fashion industries, perishable goods, and technology products where obsolescence risk is high. Exam tip: Practice creating tables with purchase dates and prices; practice calculating COGS and closing inventory step-by-step using FIFO assumptions.