Some companies have been using LIFO for "30 or 40 or 50 years" and "their accumulated reserves could be equal to their net worth," he adds.
What's more, proponents say that LIFO has long been the best way to match what the company has really paid for the inventory with the revenues it gains from it. And by yielding a truer income number than FIFO, they say, it produces a more solid number for tax purposes.
If an IFRS regime is adopted in the United States and results in a ban on LIFO, that would be "very troubling" for the companies that use it, says Christine Turgeon, a tax partner with PricewaterhouseCoopers, noting that the higher taxes would make it more costly for companies to replace aging inventories.
While FIFO may be best for the balance sheet, LIFO produces more accurate income statements, according to Turgeon. In promoting IFRS, however, the International Accounting Standards Board has pushed companies to move "from an income statement view to a balance sheet view," she adds, noting that a balance sheet could reflect the cost of goods sold from "50 years ago."
Reader CommentsDisplaying 3 of 4
MUHAMMAD HADI ABDULMUNAF
Nov 4, 2009 8:42 AM ET
LIFO or FIFO
What i think, is each company should be allowed to use their own method of accounting cost, be it LIFO, FIFO or Averge … more
Jeremy Fischer
Dec 4, 2007 9:45 AM ET
LIFO yields a better Fair Value measurement
As stated in the article, LIFO presents a more accurate picture on the income statement; however, at the expense of the … more
Tim Wiese
Dec 4, 2007 9:42 AM ET
Nevermind...
I think I've got it backwards... O'm just to focused on the Income Statement I guess.
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