Which accounting method assumes that the latest purchased assets are sold first?

The correct choice is based on the Last In, First Out (LIFO) accounting method, which operates under the assumption that the most recently acquired inventory items are the first to be sold. This method reflects the cost of goods sold using the latest purchases, which can be particularly advantageous in times of rising prices because it results in higher expenses and lower taxable income compared to other methods.

LIFO is often utilized in industries where inventory costs fluctuate significantly, as it provides a better representation of current market value. By matching recent costs to revenues, companies can more accurately depict their financial health and profitability under inflationary conditions.

In contrast, the other methods involve different approaches: FIFO (First In, First Out) assumes that the earliest items purchased are sold first; the Weighted Average Cost method averages out the costs of all inventory items sold; and Specific Identification directly matches specific costs to the specific items sold, which is practical but not as commonly used for large inventories. Each of these methods affects financial statements and tax obligations in distinctive ways, which is key to understanding their application in various business scenarios.