Communiquez avec les autres et partagez vos connaissances professionnelles

Inscrivez-vous ou connectez-vous pour rejoindre votre communauté professionnelle.

Suivre

What is the impact of a LIFO inventory method on the financial statements of a business?

user-image
Question ajoutée par Siham Amer , Financial Analyst , Noor Al Hikmah Group
Date de publication: 2018/10/10
Muhammad Nadeem
par Muhammad Nadeem , IT Assistant Manager , Carrefour - Pakistan

In Retail Business LIFO Mean Last In First Out. This Method used to estimate the ending inventory, csot of goods sold is acceptable for financial reporting purpose. The retail method can use FIFO LIFO. It is based on the relationship between cost and retail prices of inventory.

Riyad Hasan
par Riyad Hasan , Warehouse Unit head , Mabanee Company K.P.S.C

it depend of the materials, specially if there are shelf life for the material the impact will be huge loss, in some firms the LIFO is required and will increase the profitability by decreasing the stacking and delivering of the goods.

STALIN PANIADIMA
par STALIN PANIADIMA , Inventory Controller , Al Suwaidi Scaffolding Services and Access Solutions Co Ltd

LIFO Means Last in First out. It will affect the previous stock and impact the date of expiry cause to huge loss to the company.It is not applicable for perishable goods.

Inventory Management System In times of cost increases, LIFO will result in a higher cost-of-goods expense, but lower end-of-period inventory values. However, in times of cost decreases, LIFO will result in a lower cost-of-goods expense, but higher end-of-period inventory values.

Sultan Mehmood Sultan
par Sultan Mehmood Sultan , Quality Supervisor , Masood Textile Mills (Pvt) Ltd

The LIFO should be higher cost of goods expenses during the increases of values, but lower end of the Inventory period.

Irfan Hussain Khan
par Irfan Hussain Khan , Sole Proprietor , Burger Bite

Nothing it depends upon the production or demand.

Mohammed Ibrahim AlAgroud
par Mohammed Ibrahim AlAgroud , Credit Supervisor , Sulfah Financing Company

From an analytical perspective, in a rising-price and stable- or increasing-inventory environment, it is better to use LIFO debt-to-equity ratio because the retained earnings are more representative of the current economic reality. For the time, interest-earned ratio is more relevant to use LIFO because EBIT will be lower and more representative of future interest-coverage protection. If the company is currently using FIFO, it is better they use the CFO generated by FIFO because the company cannot change the fact that it will have to continue paying higher taxes under this method.

bilal ghenaiet
par bilal ghenaiet , inventory manager , ALGERIAN WATER COMPANY

Last-out (lifo): This method applies the inventory method, which assumes that items in the inventory are being sold first during the accounting year. Therefore, when the lifo method is applied, the inventory at the end of the year consists of the goods placed in stock at the beginning of the year, not at the end. During inflation, when prices rise, the lifo method gives less inventory ends, the higher the cost of goods sold, the gross profit is lower, and the taxable income is lower. Lifo style is preferred by many companies because it has an effect on the company's tax reduction and hence increased cash flow.

Albert Galang
par Albert Galang , Accountant , Saudi Health Services Co. Ltd.,

Te impact of LIFO depends upon the market fluctuation. If the cost of the inventory is increasing, LIFO will increase the Cost of Sales which will results to higher income and vice versa.

Utilisateur supprimé
par Utilisateur supprimé

The Impact of a LIFO Inventory method is that , the ageing days of the unsold inventory will show as very high since the balance stocks are the oldest .

Again, in the financial statements, the value of Inventory will be very high compared to its actual market value. This is because, in most cases, the Inventory value gets deminished over time. In LIFO method, the balance inventory will be oldest and therefore the value will be the highest. 

More Questions Like This