NessaCPA
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LIFO's benefits really depend on the cost trend of the inventory. If the inventory cost generally rises over time, LIFO is beneficiary as it lets you expense the most recently purchased inventory, thus lowering your income and more importantly, your income taxes.
The converse is also true. If the cost of replacing inventory generally goes down over time, then LIFO reduceds the cost of goods expense and bumps up income, and income taxes.
When liquidating, to where all inventory is sold, you'll possibly be selling inventory at costs completely unrealistic today, but that's how you have to record them when you do the COGS expense.
Let's say EXXON is going out of business, and they sell their last 10,000,000 barrels of oil that has been on the books since 1993. That Cost of Goods expense will be $10 or so a barrel, yet the income is $100 a barrell. They'll have a whopper of a profit and a whopper of a tax bill.
 Posted 449 days ago
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