The LIFO method assumes that the costs of the latest items bought or produced are matched against current sales. Usually, this assumption materially improves the matching of current costs against current revenue. In the United States, LIFO is accepted GAAP
In the United States, LIFO is accepted GAAP as it is in some other countries. IFRS does not allow LIFO.
LIFO is used in many industries in the United States. In some industries, 50% or more of the firms use LIFO.
For some United States companies, their LIFO reserve account is very material. Some companies with substantial LIFO reserves are as follows:
In the United States, if LIFO is used for federal taxes, then it must be used for financial reporting. Many firms that use LIFO would likely not use LIFO except for this conformity requirement.
During periods of rising prices, the firm should benefit on taxes as long as the inventory does not decline. The tax benefit may be reduced or eliminated if inventory quantities decline and old lower costs are matched against current sales.
a. If the United States firms adopt IFRS, what implications will this have for United States firms that use LIFO?
b. Assume that the United States tax rate is 40% including federal, state and local income taxes. What is the potential tax liability ( in total) for the firms listed in thiscase?
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
Company LIFO Reserve Exxon Mobil Corp. Caterpillar Deere & Co. Ford Motor Co. Kroger $21,300,000,000 2,575,000,000 1,398,000,000 865,000,000 827,000,000 $26,965,000,000 Financial Statement Date 12-31-2010 12-31-2010 10-31-2010 12-31-2010 1-29-2011
This problem has been solved!
- Tutor Answer
a They would need to switch off of LIFO for financial reporting The implications for ta…View the full answer
Students also viewed these Accounting questions