Noting that the circumstances for LIFO and FIFO change depending on the prices increasing or decreasing. Does the opposite simply apply for the LIFO reserve if prices are decreasing?
the formula of LIFO reserve is, LIFO reserve = FIFO inventory value - LIFO inventory value So, any change in LIFO, FIFO will have impact on it accordingly. IFT support team
Why the answer can not be a company (Company B) using FIFO valuation in the last example when talking about an IS item i.e. COGS? Am I missing something ?
Company A’s COGS best reflects current costs because it uses the LIFO method and has an increasing LIFO reserve. Even though company C uses LIFO, it has a decreasing LIFO reserve, which may be an indicator of LIFO liquidation. In that case, COGS will not reflect current costs. Company B uses FIFO, hence its COGS reflects older costs. IFT Support Team
Dear Gaurav, LIFO reserve is the difference between the value of FIFO inventory and LIFO inventory. In the case of rising prices, companies use LIFO method for external reporting, in order to reduce their tax burden; while they still use FIFO for internal reporting. So in order to get a clearer picture for themselves and the stakeholders they create a LIFO reserve, so that all the stakeholders can easily understand the differences in the financial statement that arise because of the difference in the accounting choice. Hope his helps. IFT Support Team
Dear Hisham, C is incorrect because decreasing LIFO reserve reflects LIFO liquidation. This in turn means that the company in dipping into older prices, which are assumed to be lower than current prices; Hence they do not reflect the current costs. IFT Support Team
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That balance sheet is not in balance. You need to add "LIFO reserve x Tax Rate" as a Deferred Tax Liability.
This is the best video thanks a lot
Thank you so much. We are glad that you find it helpful.
IFT Support Team
Thanks for these videos - very useful!
awesome sir............. thanks a lot
Thank you very much for your kind words.
IFT support team
Noting that the circumstances for LIFO and FIFO change depending on the prices increasing or decreasing. Does the opposite simply apply for the LIFO reserve if prices are decreasing?
the formula of LIFO reserve is,
LIFO reserve = FIFO inventory value - LIFO inventory value
So, any change in LIFO, FIFO will have impact on it accordingly.
IFT support team
7:17 is where I left
-swara
for net income can we say NI FIFO =NI LIFO +CHANGE IN LIFO RESERVE -TAXES
WHERE TAXES IS CHANGE IN LIFO RESERVE *TAXES
Why the answer can not be a company (Company B) using FIFO valuation in the last example when talking about an IS item i.e. COGS? Am I missing something ?
Company A’s COGS best reflects current costs because it uses the LIFO method and has an increasing LIFO reserve. Even though company C uses LIFO, it has a decreasing LIFO reserve, which may be an indicator of LIFO liquidation. In that case, COGS will not reflect current costs. Company B uses FIFO, hence its COGS reflects older costs.
IFT Support Team
Why is change in LIFO reserve subtracted from LIFO COGS to ascertain FIFO COGS? What is the logic behind this?
Dear Gaurav,
LIFO reserve is the difference between the value of FIFO inventory and LIFO inventory. In the case of rising prices, companies use LIFO method for external reporting, in order to reduce their tax burden; while they still use FIFO for internal reporting. So in order to get a clearer picture for themselves and the stakeholders they create a LIFO reserve, so that all the stakeholders can easily understand the differences in the financial statement that arise because of the difference in the accounting choice. Hope his helps.
IFT Support Team
Change in LIFO reserve between at ending and beginning of period is LIFO reserve?
Thanks
So the last example at the end of this video the answer is A or C couse i see both are true if any one has an ideo please help
Thanks
Dear Hisham,
C is incorrect because decreasing LIFO reserve reflects LIFO liquidation. This in turn means that the company in dipping into older prices, which are assumed to be lower than current prices; Hence they do not reflect the current costs.
IFT Support Team
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