Agruement for LIFO

Argument for LIFO
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LIFO, last in – first out is an inventory valuation method, which takes into account the recently received items as the cost basis. The cost valuation method is accepted in the US, but the norm in other countries is to use FIFO, first in first out. With calls for convergence of GAAP with International Financial Reporting Standards, it remains to be seen whether LIFO will continue to be an acceptable inventory valuation method.
Even though, an organization has to account for inventory that was earlier received, using LIFO helps to give a more accurate account for inventory sold as it is closely tied with inventory recently received. Essentially, the cost component of inventory is more accurate than relying on FIFO costing, and hence companies are able to calculate the profit margins better (Porte & Norton, 2011). Overall, it is easier to match costs and revenues as LIFO facilitates comparison of income statements items better by taking into account changes in inventory prices that reflect the prevailing market conditions.
Even though, the balance sheet effect is vital in understanding the financial position, the taxable income effect takes precedence when preparing financial statements. In cases where there are rising costs, the cost of goods sold also rises, and the accompanying expense deduction is also higher (Porter & Norton, 2011). For businesses, this helps to minimize income tax and reflects the impact of costs on the business. Essentially, the LIFO valuation method helps to calculate the income tax using the most recent information availab...