Accounting :(

CFA Level II
#1

Hello,

I just started account Study Session 5, and i have having major probles understanding. Converting from LIFO to FIFO. I understand the general case, but when they use multiple years its ge confusing fast. Especially knowing how to find Cumulative of income tax savings or retained earnings.

I guess the difficult parts is to know when to use delta (change) Lifo Reserve or Lifo Reserve it’s self. Is there any logic behind or just keep memorizing formula’s and hope that pulls one through the level II which i doubt.

Cumulative Income tax savings: (Delta Lifo Reserve x tax rate) + (Lifo Reserve t-1 x Tax rate)

t-1 = Previous Period.

Delta= Change

Thanks,

#2

Ok ill try to explain as i just finished this reading yesterday

When to use LIFO reserve in total- When we have to consider total inventory/Retained earning basically balanecsheet items

When to use chance in lifo reserve- When we have to consider net income or cogs of a particular period

#3

hate accounting! though it saved my ass

#4

Cumulative Income tax savings: (Delta Lifo Reserve x tax rate) + (Lifo Reserve t-1 x Tax rate)

I dont understand what the purpose of this formulae here is actually… Cumulative tax savings would be Present LIFO reserve * tax rate…

What I am trying to say is that, (LIFO (t) - LIFO(t-1)) * T + LIFO(t-1)*T = LIFO(t) * T…

Note: You DONT need to use the above formulae unless between t and t-1 time periods, the tax rates changed.