Two Reasons Often Advanced for the Adoption of LIFO Inventory

question 62

Essay

Two reasons often advanced for the adoption of LIFO inventory costing for financial reporting are the improved matching of current costs with current revenue during periods of rising prices and the reduction of income tax payments.Nonetheless,the number of companies using LIFO has not increased over the last several years.Some companies actually have switched from LIFO to FIFO over the last several years.
Identify reasons why a company would change from LIFO to FIFO for financial reporting purposes.

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Definitions:

Insurance Settlement

The amount paid by an insurance company to a policyholder or claimant as compensation for a covered loss.

Lump Sum

A single payment made at a particular time, as opposed to a series of smaller payments or installments.

Interest Rates

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Ordinary Annuity

A series of equal payments made at regular intervals, with interest compounded at the end of each period.