I have a little question on this one. If a company uses LIFO, and wants to convert to FIFO, common adjustment is 1. COGS reduced by ∆ =Ending LIFO reserve - beginning LIFO reserve. 2. NI increased by ∆ *(1-t), right? 3. on balance sheet, however, inventory will be increased by ending LIFO reserve. 4. equity will be increased by ??? ending LIFO reserve *(1-t). (from CFAI sample exam) solution 2 --> ∆*(1-t) So, whatever, there will be an inequality between A =L+E. So could anyone please tell me how the difference is balanced?
For this one: EI FIFO = EI LIFO + LIFO Reserve End COGS FIFO = COGS LIFO - Delta LIFO Reserve NI FIFO = NI LIFO + Delta LIFO Reserve * (1-t) RE FIFO = RE FIFO + Lifo Reserve End * (1-t)
I see your point. Thank you CP.