A partner from a major accounting firm made the following comment when asked about the accounting methods used by companies in the software industry: “Accounting policies that have adverse short-term effects on financial statements cannot help the industry raise capital.”
After reading such a comment, one might conclude that managers who wish to raise capital by borrowing from banks or issuing equity or debt securities should choose the FIFO cost flow assumption instead of LIFO. Yet, others have written that they are “puzzled” about why thousands of U.S. companies use FIFO instead of LIFO.
REQUIRED:
Discuss the above comments.