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Is 'Wine & Spirits' LIFO or FIFO?
Weegy: The LIFO (Last In, First Out) method of inventory costing uses both unit-base and cost-base methods of inventory valuation, in which the latest unit acquisition cost is matched with current sales revenue. [ [ Therefore, under LIFO, the order of cost outflow recognized is the inverse of the order of cost inflow. The units remaining in ending inventory are costed at the oldest unit costs available; the units in cost of sales are costed at the most recent unit costs available. Companies electing to use the LIFO approach generally believe that costs will either remain stable or increase. It is often desirable for a company to use LIFO for tax purposes to obtain a cash flow advantage (resulting from decreased tax payments) when inventory costs are rising. However, owing to a congressional income tax rule, a company that adopts the LIFO valuation method for income tax purposes also automatically adopts LIFO for financial reporting purposes. Therefore, accounting for inventory under LIFO includes complexities relating to federal tax regulations. And it may reflect less favorable financial results owing to earnings reductions and negative effects on the balance sheet as a company reports its financial position. The LIFO costing method contrasts with the first in, first out (FIFO) inventory method, which assumes that the cost of items sold in a period reflects the oldest cost in inventory just before sale. Therefore, remaining inventory valued at FIFO more closely represents current or replacement cost. FIFO more closely depicts the physical movement of goods. Companies generally use the oldest items in inventory first so they can continually roll the stock and prevent deterioration or obsolescence. In times of stable prices, FIFO has been widely used and accepted. ] ] (More)
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Asked 2/13/2013 12:48:23 PM
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