What Is (Are)the Main Reason(s)for Not Using LIFO

question 6

Multiple Choice

What is (are) the main reason(s) for not using LIFO?

• A) Inflation is very limited today in developed economies and there is often simultaneously inflation and deflation on different products or resources thus the reporting benefit of LIFO might not be significant.
• B) With even a small inflation,the LIFO-based taxable income would be less than it would be under FIFO or WAC and,if there is deflation,LIFO might create larger swings in taxable income levels than would WAC or FIFO.
• C) LIFO in periods of heavy inflation may lead to a negative valuation of an inventory that is physically real,thus giving less credibility to the balance sheet.
• D) All of these

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Definitions:

Deferred Income Taxes

Income taxes that are assessed or due for the current period but have been deferred to be paid in a future period.

Income Tax Purposes

The specific objectives or calculations for which income tax-related data is used, including determining taxable income and tax liability.

Gaining Control

Refers to obtaining the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, often realized through acquisitions or significant share purchases.

Subsidiaries

Companies that are controlled by another company, known as the parent company, usually through majority ownership of its shares.