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Advantages and disadvantages of using a LIFO inventory system

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What are the advantages and disadvantages of using a LIFO inventory system?

In what circumstances would you make the case for using LIFO?

How do you feel about the IASB approach to LIFO compared to the FASB approach?

Which is more appropriate and why?

Reference: Chapter 8: Intermediate Accounting, 12e
ISBN: 0471749559 Author: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
copyright © 2007 John Wiley & Sons, Inc.

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Solution Summary

The advantages and disadvantages of using a LIFO inventory system are examined.

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Advantages of LIFO:
? Appropriate for matching cost and revenue
? Simple to understand and easy to operate
? Reduction of income taxes

Disadvantages:
? Inventory valuation does not reflect current prices and hence is useless in context of current conditions
? Reduced cash flow
? Overstatement of reported income
? Complex and costly to apply
? Distorts crucial ...

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