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.

---

Definitions:

Profits

The financial gain obtained when the revenue earned from business activities exceeds the expenses, costs, and taxes needed to sustain the activities.

Assets

Resources owned by a business or individual that have economic value or potential to provide future benefits.

Liabilities

Financial obligations or debts that an individual or company owes to others, which must be settled over time through the transfer of economic benefits including money, goods, or services.

Retail Establishment

A business location that sells products or services directly to consumers for personal or household consumption.