CFA Mock exam LIFO to FIFO conversion of Assets

To calculate ROA

they increased Assets by LIFO reserve.

However they also reduced them by the respective tax for periods.

I thought that the assets are increased by LIFO reserve but unpaid tax increases liability(DTL)… instead the correct answer assumed that the company paid taxes and cash would be reduced.

How to approach this kind of questions in exam?



1, add LIFO reserve to inventory

  1. substract LIFO reserve*tax rate from cash

  2. add LIFO reserve*(1-t) to retained earnings, assuming no dividend is paid

Do the BB in the curriculum - there is an excellent example for all these adjustments

well i do understand the adjustment…

but i just don’t know why it updated Assets instead of Deferred Tax Liability.