Is it possible to change accounting method from FIFO to LIFO on equity sales after the fact?
Q. I had long-term XYZ equity in my account, but wanted to leave it there long term and trade same security short-term. But under FIFO, as soon as I sold shares of XYZ, thinking I would see short-term gain, brokerage used cost basis from two years ago and I took a big hit (FIFO). Is it possible after the fact to stipulate shares a LIFO so I get tax benefit?
Asked by Bill W - Sat Feb 13 04:11:04 2010 - - 1 Answers - 0 Comments
A. Go to irs.gov. There is a form where you can change the accounting method. But if I were you, I'd stick to the averaging method because the IRS would like to see a conservative method use. If you trade often, there is a form for straddle transaction.
Answered by Gerardo D, EA - Sat Feb 13 05:48:58 2010
Q. I had long-term XYZ equity in my account, but wanted to leave it there long term and trade same security short-term. But under FIFO, as soon as I sold shares of XYZ, thinking I would see short-term gain, brokerage used cost basis from two years ago and I took a big hit (FIFO). Is it possible after the fact to stipulate shares a LIFO so I get tax benefit?
Asked by Bill W - Sat Feb 13 04:11:04 2010 - - 1 Answers - 0 Comments
A. Go to irs.gov. There is a form where you can change the accounting method. But if I were you, I'd stick to the averaging method because the IRS would like to see a conservative method use. If you trade often, there is a form for straddle transaction.
Answered by Gerardo D, EA - Sat Feb 13 05:48:58 2010
How to Determine Between LIFO or FIFO costing methods?
Q. For my accounting project, we are to determine what costing method Best Buy corporation uses for its inventory. My question is, how are you able to determine which costing method such a company as Best Buy is using (LIFO or FIFO)? Do you start out by looking at both their quarterly income statements & balance sheets for Cost of Goods Sold & Inventory values? Thanks for your input!
Asked by bavarianmotorwerkz - Wed Nov 19 04:38:32 2008 - - 1 Answers - 0 Comments
A. Check the year-end financial reports. In the notes at the end of the statements, under Property and Equipment, the type of depreciation will be noted. In Best Buys case, it is straight-line depreciation.
Answered by philbrigman - Wed Nov 19 05:12:08 2008
Q. For my accounting project, we are to determine what costing method Best Buy corporation uses for its inventory. My question is, how are you able to determine which costing method such a company as Best Buy is using (LIFO or FIFO)? Do you start out by looking at both their quarterly income statements & balance sheets for Cost of Goods Sold & Inventory values? Thanks for your input!
Asked by bavarianmotorwerkz - Wed Nov 19 04:38:32 2008 - - 1 Answers - 0 Comments
A. Check the year-end financial reports. In the notes at the end of the statements, under Property and Equipment, the type of depreciation will be noted. In Best Buys case, it is straight-line depreciation.
Answered by philbrigman - Wed Nov 19 05:12:08 2008
Why is it important to use FIFO inventory system when handling beer product?
Q. As far as the bar owner is concerned.
Asked by OK - Thu Jan 1 10:05:30 2009 - - 2 Answers - 0 Comments
A. Just like all food products, beer will spoil and begin to have a bad taste. I was an accountant for Anheuser Busch, and we had a 110 day for bottles and cans and a 55 day on kegs. This does not mean the beer is not safe to drink, this is when it begins to lose its freshness. If you ever get an opportunity to attend an Anheuser Busch beer class at Sea World or Busch Gardens, you will get to taste the difference in old beer and fresh. There is a huge difference in taste.
Answered by Doug B - Thu Jan 1 11:40:19 2009
Q. As far as the bar owner is concerned.
Asked by OK - Thu Jan 1 10:05:30 2009 - - 2 Answers - 0 Comments
A. Just like all food products, beer will spoil and begin to have a bad taste. I was an accountant for Anheuser Busch, and we had a 110 day for bottles and cans and a 55 day on kegs. This does not mean the beer is not safe to drink, this is when it begins to lose its freshness. If you ever get an opportunity to attend an Anheuser Busch beer class at Sea World or Busch Gardens, you will get to taste the difference in old beer and fresh. There is a huge difference in taste.
Answered by Doug B - Thu Jan 1 11:40:19 2009
which of the FIFO
Q. Let's forget about LIFO and Specific identification.They can be easy manipulated by management.Weighted Average cannot be manipulated per se,but calculations can result in a rounding error.I didn't find nothing about FIFO, if it can be easy or difficult manipulated by management.
Asked by Liliana L - Thu Nov 12 14:00:42 2009 - - 1 Answers - 0 Comments
A. It depends on what you mean by manipulate. If you mean calculate, then LIFO. Though it's no harder than FIFO in theory, in practice it can require complex calculcations because you're usually working with an index. If you mean manipulate as in 'cook the books', then specific identification. Edit: OK, you mean manipulate earnings. LIFO is the easiest, specific identification is the most difficult.
Answered by just_the_facts_ma'am - Thu Nov 12 14:17:59 2009
Q. Let's forget about LIFO and Specific identification.They can be easy manipulated by management.Weighted Average cannot be manipulated per se,but calculations can result in a rounding error.I didn't find nothing about FIFO, if it can be easy or difficult manipulated by management.
Asked by Liliana L - Thu Nov 12 14:00:42 2009 - - 1 Answers - 0 Comments
A. It depends on what you mean by manipulate. If you mean calculate, then LIFO. Though it's no harder than FIFO in theory, in practice it can require complex calculcations because you're usually working with an index. If you mean manipulate as in 'cook the books', then specific identification. Edit: OK, you mean manipulate earnings. LIFO is the easiest, specific identification is the most difficult.
Answered by just_the_facts_ma'am - Thu Nov 12 14:17:59 2009
How would a company account for retrospective employee bonuses earned because of changing from LIFO to FIFO?
Q. This would be a change in 2006, but the change must be made retrospectively to the previous two years. What happens if an employee had a bonus tied to the value of the inventory in 2005 and now because of the change he hit his mark. How does a company account for this?
Asked by Tommy T - Sun Oct 28 18:24:32 2007 - - 1 Answers - 0 Comments
A. If a retrospective accounting change in one item (e.g. inventory valuation) would result in a change in another item (e.g. employee bonuses earned) under GAAP, then the resulting changes must generally be given effect (and thus recorded). It generally follows that financial statements will be restated to give effect to these changes. In this case, however, the _legal obligation_ of the company to pay the "employee bonuses earned" depends on the applicable law, which in turn depends on the country/state in which the company is headquartered, the country/state in which the employee(s) worked, various statutes of limitation, and the like. Please re-post with these and related facts, and we will attempt to provide additional information. … [cont.]
Answered by Tim F - Thu Nov 1 14:03:57 2007
Q. This would be a change in 2006, but the change must be made retrospectively to the previous two years. What happens if an employee had a bonus tied to the value of the inventory in 2005 and now because of the change he hit his mark. How does a company account for this?
Asked by Tommy T - Sun Oct 28 18:24:32 2007 - - 1 Answers - 0 Comments
A. If a retrospective accounting change in one item (e.g. inventory valuation) would result in a change in another item (e.g. employee bonuses earned) under GAAP, then the resulting changes must generally be given effect (and thus recorded). It generally follows that financial statements will be restated to give effect to these changes. In this case, however, the _legal obligation_ of the company to pay the "employee bonuses earned" depends on the applicable law, which in turn depends on the country/state in which the company is headquartered, the country/state in which the employee(s) worked, various statutes of limitation, and the like. Please re-post with these and related facts, and we will attempt to provide additional information. … [cont.]
Answered by Tim F - Thu Nov 1 14:03:57 2007
Program to calculate FIFO losses/gains on stock transactions?
Q. Is there a program that I could use to easily calculate gains/losses on stock transactions. I have multiple buys/sells for a specific stock and was looking for an easy way to calculate losses using the FIFO/LIFO method.
Asked by andy g - Wed Jul 2 18:27:06 2008 - - 1 Answers - 0 Comments
A. gainskeeper
Answered by Alan Greenspan - Wed Jul 2 22:38:01 2008
Q. Is there a program that I could use to easily calculate gains/losses on stock transactions. I have multiple buys/sells for a specific stock and was looking for an easy way to calculate losses using the FIFO/LIFO method.
Asked by andy g - Wed Jul 2 18:27:06 2008 - - 1 Answers - 0 Comments
A. gainskeeper
Answered by Alan Greenspan - Wed Jul 2 22:38:01 2008
How much more cash will be available for management under LIFO than under FIFO? Why? ?
Q. How much more cash will be available for management under LIFO than under FIFO? Why? I dont understand what that means. Which cash ? and for what management ?
Asked by Ijustdoneknow. - Tue Oct 28 18:46:19 2008 - - 1 Answers - 0 Comments
A. The cost formula used has nothing to do with cash availability. You have purchased the inventory already. FIFO and LIFO are just methods to calculate the COGS and ending inventory. The choice of method does not affect cash flows in a company.
Answered by Sandy - Wed Oct 29 02:24:59 2008
Q. How much more cash will be available for management under LIFO than under FIFO? Why? I dont understand what that means. Which cash ? and for what management ?
Asked by Ijustdoneknow. - Tue Oct 28 18:46:19 2008 - - 1 Answers - 0 Comments
A. The cost formula used has nothing to do with cash availability. You have purchased the inventory already. FIFO and LIFO are just methods to calculate the COGS and ending inventory. The choice of method does not affect cash flows in a company.
Answered by Sandy - Wed Oct 29 02:24:59 2008
When would you use FIFO and when would you use Average Cost as an inventory method. Why?
Q. This is an accounting question.
Asked by mshelena - Sat Sep 29 20:34:24 2007 - - 2 Answers - 0 Comments
A. This question is not as simple as the others are making it sound and cannot be explained clear enough here alone. It is not really a question of preference. Different methods can be used (but depending on whether or not you are a public company or not, there are stipulations about changing methods). Depending on the method, net income can be inflated which make the company look great on paper. This is not always great because income taxes will be higher. On the flip side, you can use an inventory method that deflates net income and in-turn lowers taxes. Though your net income is not really less, it just may make it appear that it is tied up in inventory. It just depends on what inventory you choose to apply to the inventory ledger. … [cont.]
Answered by Chris G - Sun Sep 30 01:14:39 2007
Q. This is an accounting question.
Asked by mshelena - Sat Sep 29 20:34:24 2007 - - 2 Answers - 0 Comments
A. This question is not as simple as the others are making it sound and cannot be explained clear enough here alone. It is not really a question of preference. Different methods can be used (but depending on whether or not you are a public company or not, there are stipulations about changing methods). Depending on the method, net income can be inflated which make the company look great on paper. This is not always great because income taxes will be higher. On the flip side, you can use an inventory method that deflates net income and in-turn lowers taxes. Though your net income is not really less, it just may make it appear that it is tied up in inventory. It just depends on what inventory you choose to apply to the inventory ledger. … [cont.]
Answered by Chris G - Sun Sep 30 01:14:39 2007
How to find Gross margin using FIFO and LIFO method?
Q. Hagel Company had beginning inventory of 100 units that cost $5 each. These items were purchased with cash in the previous accounting period. During the current accounting period, Hagel paid cash to purchase 500 units of inventory at a price of $6 each. Hagel sold 520 units of inventory at a cash price of $10 per unit. Thanks
Asked by chi - Tue Sep 30 19:11:40 2008 - - 2 Answers - 0 Comments
A. beginning inventory 100 units @ $5 purchased 500 units @ $6 Total: 600 units $3500 Sold 520 units Ending inventory 80 units Under FIFO Sales 520 @ $10; $5200 COGS (100 @ $5 + 420 @ $6) $3020 Gross margin $2180 GM percentage 41.92% Under LIFO Sales 520 @ $10; $5200 COGS (500 @ $6 + 20 @ $5) $3100 Gross margin $2100 GM percentage 40.38%
Answered by Sandy - Tue Sep 30 22:51:03 2008
Q. Hagel Company had beginning inventory of 100 units that cost $5 each. These items were purchased with cash in the previous accounting period. During the current accounting period, Hagel paid cash to purchase 500 units of inventory at a price of $6 each. Hagel sold 520 units of inventory at a cash price of $10 per unit. Thanks
Asked by chi - Tue Sep 30 19:11:40 2008 - - 2 Answers - 0 Comments
A. beginning inventory 100 units @ $5 purchased 500 units @ $6 Total: 600 units $3500 Sold 520 units Ending inventory 80 units Under FIFO Sales 520 @ $10; $5200 COGS (100 @ $5 + 420 @ $6) $3020 Gross margin $2180 GM percentage 41.92% Under LIFO Sales 520 @ $10; $5200 COGS (500 @ $6 + 20 @ $5) $3100 Gross margin $2100 GM percentage 40.38%
Answered by Sandy - Tue Sep 30 22:51:03 2008
Would a pharamaceutical company use a FIFO, LIFO, or random inventory system?
Q. There's this homework question that I am struggling with. Can someone please answer and give me a detailed reason why a pharmaceutical company would use FIFO, LIFO, or a random inventory system.
Asked by Larry - Wed Dec 9 19:23:01 2009 - - 2 Answers - 0 Comments
A. FIFO - First in - first out ... LIFO - Last in - first out... - it will always be FIFO - because these products/formulations age and become obsolete or lose their potency after a certain time. Random Inventory system or LIFO, would cause absolute chaos - Company could be sued for sending out past dated medications.
Answered by dusty_titus - Wed Dec 9 19:34:21 2009
Q. There's this homework question that I am struggling with. Can someone please answer and give me a detailed reason why a pharmaceutical company would use FIFO, LIFO, or a random inventory system.
Asked by Larry - Wed Dec 9 19:23:01 2009 - - 2 Answers - 0 Comments
A. FIFO - First in - first out ... LIFO - Last in - first out... - it will always be FIFO - because these products/formulations age and become obsolete or lose their potency after a certain time. Random Inventory system or LIFO, would cause absolute chaos - Company could be sued for sending out past dated medications.
Answered by dusty_titus - Wed Dec 9 19:34:21 2009
What is the reasoning to choose either LIFO or FIFO as an inventory costing method for tax purposes?
Q. What is the reasoning to choose either LIFO or FIFO as an inventory costing method for tax purposes?
Asked by angel_rat_83 - Sun Jul 1 23:35:09 2007 - - 2 Answers - 0 Comments
A. LIFO is used by most retailers of larger items such as appliances and autos. LIFO allows them to deduct the supposedly higher cost of the latest purchases against the sale price thereby reducing their taxable income. This is true in an inflationary or normal business cycle. It does hurt in a recession but that doesn't happen very often. FIFO would only be the preferred method for small items that sell quickly. The more often the inventory turns over themore often you will find FIFO being used.
Answered by waggy_33 - Mon Jul 2 06:55:45 2007
Q. What is the reasoning to choose either LIFO or FIFO as an inventory costing method for tax purposes?
Asked by angel_rat_83 - Sun Jul 1 23:35:09 2007 - - 2 Answers - 0 Comments
A. LIFO is used by most retailers of larger items such as appliances and autos. LIFO allows them to deduct the supposedly higher cost of the latest purchases against the sale price thereby reducing their taxable income. This is true in an inflationary or normal business cycle. It does hurt in a recession but that doesn't happen very often. FIFO would only be the preferred method for small items that sell quickly. The more often the inventory turns over themore often you will find FIFO being used.
Answered by waggy_33 - Mon Jul 2 06:55:45 2007
What type of inventory system would a pharmaceutical manufacturer have? FIFO, LIFO, or a random one?
Q. Could you also please explain to me why, I'm kind of slow with accounting.
Asked by Larry - Wed Dec 16 14:06:23 2009 - - 1 Answers - 0 Comments
A. I could be wrong with this but I believe they would have a FIFO system because they wouldn't want expired products to sell to customers. FIFO means the first product to come in would be the first product to go out for example: if they bring in 40 perscriptions in january and 40 in february, then in march they sell 30 perscriptions, they would sell 30 from januarys inventory, leaving 10 from january and 40 from february.
Answered by campy - Wed Dec 16 14:26:57 2009
Q. Could you also please explain to me why, I'm kind of slow with accounting.
Asked by Larry - Wed Dec 16 14:06:23 2009 - - 1 Answers - 0 Comments
A. I could be wrong with this but I believe they would have a FIFO system because they wouldn't want expired products to sell to customers. FIFO means the first product to come in would be the first product to go out for example: if they bring in 40 perscriptions in january and 40 in february, then in march they sell 30 perscriptions, they would sell 30 from januarys inventory, leaving 10 from january and 40 from february.
Answered by campy - Wed Dec 16 14:26:57 2009
When the cost of raw materials is increasing, FIFO accounting?
Q. When the cost of raw materials is increasing, FIFO accounting Question 45 answers yields higher ending inventory values than LIFO. produces higher unit sales than using LIFO. yields higher cost of goods sold than LIFO. All of the above.
Asked by James B - Fri Feb 27 15:36:45 2009 - - 2 Answers - 0 Comments
A. With FIFO, the older stock is assumed to have been sold first, which would have been cheaper in this scenario, so FIFO would yeild a higher ending inventory value (the more expensive recent product is still in stock). It also, therefore, means a lower cost of sales. Not sure that it has any effeect at all on unit sales...
Answered by robrobiii - Fri Feb 27 15:59:28 2009
Q. When the cost of raw materials is increasing, FIFO accounting Question 45 answers yields higher ending inventory values than LIFO. produces higher unit sales than using LIFO. yields higher cost of goods sold than LIFO. All of the above.
Asked by James B - Fri Feb 27 15:36:45 2009 - - 2 Answers - 0 Comments
A. With FIFO, the older stock is assumed to have been sold first, which would have been cheaper in this scenario, so FIFO would yeild a higher ending inventory value (the more expensive recent product is still in stock). It also, therefore, means a lower cost of sales. Not sure that it has any effeect at all on unit sales...
Answered by robrobiii - Fri Feb 27 15:59:28 2009
a firm utilizing FIFO inventory accouting would, in calcullating gross profit?
Q. 1 all sales were from begining inventory. 2 all sales were from inventory before it was depleted, and then use sales from current production. 3 all sales were from current production 4 all sales were from cash.
Asked by Designs T - Sun Sep 13 22:25:46 2009 - - 1 Answers - 0 Comments
A. 2 is the right answer
Answered by Bonimba - Thu Sep 17 16:18:17 2009
Q. 1 all sales were from begining inventory. 2 all sales were from inventory before it was depleted, and then use sales from current production. 3 all sales were from current production 4 all sales were from cash.
Asked by Designs T - Sun Sep 13 22:25:46 2009 - - 1 Answers - 0 Comments
A. 2 is the right answer
Answered by Bonimba - Thu Sep 17 16:18:17 2009
How I can watch live the 2006 FIFO World Cup Germany over the internet?
Q. Let me know of any web site, you might know, thank you
Asked by SC33614 - Tue Jun 20 07:05:56 2006 - - 5 Answers - 1 Comments
A. download vlc media player from www.videolan.org then go to www.viidoo.com where you will be able to watch it on espn2 or abc
Answered by Dr Gus - Tue Jun 20 07:50:00 2006
Q. Let me know of any web site, you might know, thank you
Asked by SC33614 - Tue Jun 20 07:05:56 2006 - - 5 Answers - 1 Comments
A. download vlc media player from www.videolan.org then go to www.viidoo.com where you will be able to watch it on espn2 or abc
Answered by Dr Gus - Tue Jun 20 07:50:00 2006
Can someone help me with the difference between LIFO and FIFO?
Q. 10/1 Beginning Inventory 60units @ $25 10/9 Purchase 120 units @ $26 10/11 Sale 100 units @ $ 35 10/17 Purchase 70 units @ $27 10/22 Sale 60 units @ $40 I must now, 1. Caculate the ending inventory, cost of goods sold, gross profit and gross profit rate for lifo fifo average cost. 2. Compare results for the three cost flow assumptions. I do not understand the difference in putting the information in the spreadsheet for LIFO and FIFO. Anyhelp would be greatly appreciated. 10/25 Purchase 80 units @ $28 10/29 Sale 110 units @ $40
Asked by rosecrashers1365 - Fri May 4 10:16:19 2007 - - 4 Answers - 0 Comments
A. One way to think about LIFO and FIFO is to picture in your mind a big jar of M&M's that has a dispenser at the bottom. After the jar is filled and you take some out to eat, if you use the dispenser at the bottom, it's FIFO. If you take the top off and grab some, it's LIFO. Given your data, the cost of the first 100 units sold is this: LIFO: $2600 (all 100 units come from the 10/9 purchase) FIFO: 60 units @ $25...$1500 +40 units @ $26...$1040 COGS...$2540 Hope that helps
Answered by Kat - Fri May 4 10:33:16 2007
Q. 10/1 Beginning Inventory 60units @ $25 10/9 Purchase 120 units @ $26 10/11 Sale 100 units @ $ 35 10/17 Purchase 70 units @ $27 10/22 Sale 60 units @ $40 I must now, 1. Caculate the ending inventory, cost of goods sold, gross profit and gross profit rate for lifo fifo average cost. 2. Compare results for the three cost flow assumptions. I do not understand the difference in putting the information in the spreadsheet for LIFO and FIFO. Anyhelp would be greatly appreciated. 10/25 Purchase 80 units @ $28 10/29 Sale 110 units @ $40
Asked by rosecrashers1365 - Fri May 4 10:16:19 2007 - - 4 Answers - 0 Comments
A. One way to think about LIFO and FIFO is to picture in your mind a big jar of M&M's that has a dispenser at the bottom. After the jar is filled and you take some out to eat, if you use the dispenser at the bottom, it's FIFO. If you take the top off and grab some, it's LIFO. Given your data, the cost of the first 100 units sold is this: LIFO: $2600 (all 100 units come from the 10/9 purchase) FIFO: 60 units @ $25...$1500 +40 units @ $26...$1040 COGS...$2540 Hope that helps
Answered by Kat - Fri May 4 10:33:16 2007
If a company uses the FIFO cost assumption?
Q. , the cost of goods sold for the period will be the same under a perpetual or periodic inventory system?
Asked by Robert - Sat Aug 30 17:53:38 2008 - - 1 Answers - 0 Comments
A. In light of the questions you are asking I suggest that you read the textbook and/or pay more attention in class. In this case there is no difference. I wouldn't call this a trick question, but there is no real relationship between the inventory method and the cost of goods sold. By the way, the IRS requires that a physical inventory be taken at least once per year. Therefore, on an annual basis, the perpetual and periodic (physical) inventory methods MUST yield the same results. If there is a difference it is customary to adjust the perpetual inventory because the assumption is that any difference is due to theft and breakage and that the physical inventory is the more accurate of the two. Hope this helps Jerry-the-bookkeeper
Answered by jerry-the-bookkeeper - Sat Aug 30 19:28:56 2008
Q. , the cost of goods sold for the period will be the same under a perpetual or periodic inventory system?
Asked by Robert - Sat Aug 30 17:53:38 2008 - - 1 Answers - 0 Comments
A. In light of the questions you are asking I suggest that you read the textbook and/or pay more attention in class. In this case there is no difference. I wouldn't call this a trick question, but there is no real relationship between the inventory method and the cost of goods sold. By the way, the IRS requires that a physical inventory be taken at least once per year. Therefore, on an annual basis, the perpetual and periodic (physical) inventory methods MUST yield the same results. If there is a difference it is customary to adjust the perpetual inventory because the assumption is that any difference is due to theft and breakage and that the physical inventory is the more accurate of the two. Hope this helps Jerry-the-bookkeeper
Answered by jerry-the-bookkeeper - Sat Aug 30 19:28:56 2008
What is the procedure to follow FIFO & LIFO in case of earnings?
Q. What is the procedure to follow FIFO & LIFO in case of earnings?
Asked by ramana - Mon Jul 7 23:46:23 2008 - - 1 Answers - 0 Comments
A. FIFO and LIFO is followed in Stock only. In earnings it will not be quite better to follow for tax related queries
Answered by suchithra S - Tue Jul 8 01:24:23 2008
Q. What is the procedure to follow FIFO & LIFO in case of earnings?
Asked by ramana - Mon Jul 7 23:46:23 2008 - - 1 Answers - 0 Comments
A. FIFO and LIFO is followed in Stock only. In earnings it will not be quite better to follow for tax related queries
Answered by suchithra S - Tue Jul 8 01:24:23 2008
2) What is the disadvantage of the FIFO method of stock valuation? Give ONLY 2 disadvantages.?
Q. 2) What is the disadvantage of the FIFO method of stock valuation? Give ONLY 2 disadvantages.?
Asked by obote - Fri Apr 18 07:07:38 2008 - - 3 Answers - 0 Comments
A. First, relating to raysor's comment, of course the oldest inventory should be used first. This is called inventory rotation and has to do with the physical inventory and has nothing to do with how the accounting is done. In periods of inflation, as we have now and probably will continue to have, the older inventory is presumed to have a lower cost. FIFO is a problem because it matches current sales with old, cheap inventory. This ignores the true cost of replacing the goods sold. It inflates profits and lead to higher taxes on the inflated profits and it allows executives to claim bonuses for higher performance. This last bit is why it is used; the inaccuracies make management look good.
Answered by Ted - Fri Apr 18 09:12:14 2008
Q. 2) What is the disadvantage of the FIFO method of stock valuation? Give ONLY 2 disadvantages.?
Asked by obote - Fri Apr 18 07:07:38 2008 - - 3 Answers - 0 Comments
A. First, relating to raysor's comment, of course the oldest inventory should be used first. This is called inventory rotation and has to do with the physical inventory and has nothing to do with how the accounting is done. In periods of inflation, as we have now and probably will continue to have, the older inventory is presumed to have a lower cost. FIFO is a problem because it matches current sales with old, cheap inventory. This ignores the true cost of replacing the goods sold. It inflates profits and lead to higher taxes on the inflated profits and it allows executives to claim bonuses for higher performance. This last bit is why it is used; the inaccuracies make management look good.
Answered by Ted - Fri Apr 18 09:12:14 2008
Can you elect to switch from LIFO to FIFO as of 1/1/06 if you asked to change your LIFO method on 6/1/01?
Q. I know there is a 5-year time issue. I don't know if a change in method of calculating LIFO applies. I'm also not sure if I have already met the 5-year time requirement since the last 3115 was filed 6/1/01, and this one would be filed on 12/31/06 or later.
Asked by Carol B - Thu Dec 21 13:50:38 2006 - - 1 Answers - 0 Comments
A. My first question to you is why are you switching? Unless your old inventory cost you more than what your inventory costs you now, there's no reason for you to switch. You'll just owe more taxes. If your election was effective for the 12/31/01 tax year, I believe you can switch it to the 12/31/06 tax year. If effective 12/31/02, then you need Im not seeing anything in the instructions regarding the 5-year limit. You'll need to consult your CPA regarding the 481(a) adjustments if you do switch it.
Answered by texascajun82 - Thu Dec 21 20:25:11 2006
Q. I know there is a 5-year time issue. I don't know if a change in method of calculating LIFO applies. I'm also not sure if I have already met the 5-year time requirement since the last 3115 was filed 6/1/01, and this one would be filed on 12/31/06 or later.
Asked by Carol B - Thu Dec 21 13:50:38 2006 - - 1 Answers - 0 Comments
A. My first question to you is why are you switching? Unless your old inventory cost you more than what your inventory costs you now, there's no reason for you to switch. You'll just owe more taxes. If your election was effective for the 12/31/01 tax year, I believe you can switch it to the 12/31/06 tax year. If effective 12/31/02, then you need Im not seeing anything in the instructions regarding the 5-year limit. You'll need to consult your CPA regarding the 481(a) adjustments if you do switch it.
Answered by texascajun82 - Thu Dec 21 20:25:11 2006
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