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CLASS QUESTIONS8BMWF - liquidations A pool groups items of...

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CLASS QUESTIONS (8B) (1) What is meant by the LIFO reserve? The difference between the inventory method used for internal reporting purposes and Lifo is the allowance to reduce inventory to lifo or the lifo reserve . Most companies will use standard costing. (2) What do you think is the main reason that more large companies use LIFO rather than FIFO? What is the LIFO conformity rule (p. 407)? Switching from FIfo to Lifo results in an immediate tax benefit. The LIFO conformity rule is the tax law that requires a company that uses LIFOR for tax purposes to also use LIFO for financial accounting purposes. (3) What is meant by LIFO liquidation? It is the erosion of the LIFO inventory. When unit sales is greater than unit purchases during the year, then the company “liquidates” layers of Beginning Inventory causing COGS to consist of older, lower costs. It often distorts net income and leads to substantial tax payments (4) Define an inventory pool . How does the use of inventory pools result in fewer LIFO
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Unformatted text preview: liquidations? A pool groups items of a similar nature, thus only instead of identical units, the company combines and counts as a group a number of similar units or products. This specific goods pooled lifo approach usually results in fewer lifo liquidations because the reduction of one quantity in the pool may be offset in an increase in another. (5) What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Determines and measures any increases and decreases in a pool in terms of total dollar value, not the physical quantity of the goods in the inventory pool. Advantage: Companies may include a broader range of goods in a dollar value lifo pool. A dollar value lifo pool permits replacement of goods that are similar items, similar in use, or interchangeable....
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