LIFO

Question 1

What is it?

Answer 1

Last In First Out inventory valuation method

Question 2

Uses

Answer 2

US is the only country that allows it.

Used for tax purposes so also used for financial statements.

Question 3

Problems

Answer 3

Comparability: U.S. is the only country that uses it, so we cannot compare to foreign markets.

Obama Administration want to appeal LIFO.

IFRS does not allow it.

Question 4

Pros of Getting Rid of LIFO

Answer 4

Tax revenue would increases

Take us one step closer to IFRS

Less complicated financial reporting

More comparability with other companies

Eliminate a tax deferral tool

Inevitable

The Obama Administration will allow for the tax liability upon switching to be split up between 4 years and now, possibly, 10 years.

Question 5

Cons of Getting Rid of LIFO

Answer 5

Would cause an increase in tax liability of the year in switching methods

Many companies in the U.S. will have to change inventory valuation methods

Some small business may not be able to afford the liability of the first year and go under