case 3 - The controversy surrounding LIFO has been apparent...

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The controversy surrounding LIFO has been apparent for decades. In fact, in 1930 the Supreme Court ruled out the use of LIFO stating that it was not an acceptable method for valuing inventories. However, years later Congress created the Revenue Act of 1939 which included the authorization for the use of the LIFO method for financial reporting purposes. Thus, the LIFO conformity rule was created (Hoffman 2009). The LIFO conformity rule establishes that companies must use to the LIFO reserve to compute FIFO for comparison purposes. Still to this day the controversy continues. LIFO is typically favored for tax purposes. In a recent article in Treasury and Risk by Susan Kelly, Kelly states that “LIFO tends to boost a company’s inventories and reduce its earnings, thus lowering its tax bill.” LIFO allows companies to benefit from the increases in inflation and rising inventories. Normally, inflation and high inventories would diminish profits, however when using the LIFO method of valuing
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This note was uploaded on 04/05/2011 for the course ACC 310 taught by Professor Drogt during the Fall '10 term at Grand Valley State.

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case 3 - The controversy surrounding LIFO has been apparent...

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