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:

Joint

Pertaining to rights, obligations, or ownership shared between two or more parties.

Unlimited Liability

A legal structure where the owners of a business are personally responsible for all of the debts and obligations of the business, without any limit.

Unanimous Agreement

A consensus or decision where all members or parties involved fully agree without any dissent.

Management

The act or skill of organizing, planning, leading, and controlling resources to achieve specific goals.