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11110memo2 - distortion in the reported income for a given...

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Memorandum To: CM 2 Management Team From: Leah Celani, Accountant Date: November 1, 2010 Subject: Dangers of using the LIFO method I would like to inform you that it would not be beneficial to use a LIFO liquidation to make the income statement look better. If a company eliminates the base or layers of old costs, it may match old, irrelevant costs against current revenues. This may result in a
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Unformatted text preview: distortion in the reported income for a given period. Furthermore, this may cause poor buying habits because your company may purchase more goods and match these goods against revenue to avoid charging the old costs to expense. I would suggest that you change to dollar-value LIFO in order to minimize LIFO liquidations....
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