# Step-by-Step Solution ## Step 1: Understand the Scenario - **Situation:** An enterprise changes its inventory valuation method from FIFO (First-In, First-Out) to weighted average. - **Additional Info:** This occurs during a year of highly volatile prices. - **Action Taken:** The enterprise **discloses the impact** of this change in its financial statements. ## Step 2: Identify the Accounting Principles Let's briefly define each principle: - **A) Consistency:** Requires that the same accounting methods be used from period to period unless a change is justified and disclosed. - **B) Disclosure:** Requires all significant information be disclosed in the financial statements. - **C) Materiality:** States that all material matters should be reported; immaterial items can be treated flexibly. - **D) Relevance:** Information must be relevant to users' decision making. ## Step 3: Analyze What Principle Applies - The question centers on a **change in accounting method** (FIFO to weighted average), which is a deviation from prior practice. - The **consistency principle** generally prohibits such changes *unless* the new method provides more relevant or reliable information. - When a change is justified, **disclosure** of its impact is required. - However, the *principle that allows* such a deviation is **relevance**: the change is allowed if it results in financial statements that are more relevant to users, especially in times of volatile prices. ## Step 4: Evaluate the Options - **Consistency** is about following the same method, but *allows* change only if justified, usually by increased relevance or reliability. - **Disclosure** is about telling users about the change, not about allowing it. - **Materiality** is about the size/significance of the item. - **Relevance** is about providing information that is useful and meaningful to users. **The principle that specifically *allows* the change from FIFO to weighted average is Relevance**: the change is permitted if it results in financial statements that are more relevant to users. ## Step 5: Final Answer **Correct answer:** **D) Relevance** --- ## Explanation - The **relevance principle** allows a change in accounting policy if it results in financial statements that better meet the needs of users, especially in situations like highly volatile prices. - The **consistency principle** is about using the same method, but does not itself allow change; it requires justification for deviation, typically based on relevance or reliability. - **Disclosure** is required when a change is made, but does not itself permit the change. - **Materiality** is not the key issue here since the change clearly has a material effect. --- **Final Answer:** **D) Relevance**