Convering FIFO to LIFO.

There are two things i am struggling with understanding. converting Equity and NI.

Since your COGS is higher for LIFO, your net income will be lower, and this also lowers your equity.

Equity (FIFO) = Equity (LIFO) + (LIFO Reserve * (1-Tax rate)

Net Income (FIFO) = Net Income (LIFO) + (Change in Reserve * (1-tax)).

Can someone please explain the 1 - tax rate? i understand that pretty much every company in the US prefers LIFO (during rising inflation periods), because there NI is less and they are taxed less than FIFO.

As you say, COGS is higher under LIFO. So, under FIFO, your COGS is lower, which means you earn more profit. You have to adjust this profit by taxes paid to arrive at Net Income (i.e. every extra $1 i earn, i pay away my tax rate and therefore actually earn: 1 - tax rate, on a net basis).