The IFRS Disallow the Use of LIFO for External Financial

question 58

Essay

The IFRS disallow the use of LIFO for external financial reporting. Assume a U.S. based company has been using LIFO for financial and tax reporting but now wants to prepare IFRS conforming financial statements to enable its stock to be traded on one of the European stock exchanges.
Required:

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Definitions:

Net Operating Income

The earnings derived from a company's day-to-day operations, after subtracting all operational expenses except interest and taxes.

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Contribution Margin

The profit remaining after variable costs have been subtracted from revenue, indicating how much contributes to covering fixed costs and generating profit.

Variable Cost

Variable costs are expenses that change in proportion to the activity of a business, such as materials and labor costs.