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LIFO vs FIFO; GAAP vs IASB

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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 to the FASB approach? Which is more appropriate and why?

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Solution Summary

The 330 word solution is cited and fully explains the effects to the income statement and balance sheet using the LIFO inventory system. GAAP and IASB theories are discussed.

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The advantages of using LIFO in a growing economy are that the income tax liability will be reduced. If product prices are rising which is normally the case and the last purchased items are removed from inventory first, then the cost of goods sold will be a higher amount.

If cost of goods sold is higher, then profits are lower and income tax is lower. Therefore the income statement is truly incorrect if it purports to show the true costs of revenue. This is true because inventory is normally cycled ...

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