After learning about LIFO (Last In, First Out), however, I realized the benefits to income tax reduction seemed brilliant!When price are rising (inflation) the cost of goods sold is higher – resulting in lower taxable income.LIFO may result in ending inventory “…that is priced well below its replacement cost.” (Williams)By the same token… future declines in market have less impact on LIFO because most recent (generally higher cost items) are sold first.Any product acquired at a lower price will coincide with market downturn pricing.Of course, inventory may be understated because the inventory figure is then based on oldest (often lower) costs in the case of inflation. LCM (Lower-of-Cost-or-Market) Rule – In this case, inventory on a balance sheet is valued at the lower of either its cost or its market value (current replacement cost).With this information, I turned back to my Module 3 financial statement from CVS Health to see what the financial statement disclosed about their inventory methods: Williams, J. (2016). Financial & managerial accounting. Place of publication not identified: Mcgraw-Hill Irwin.
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