Would a temporary difference, that result from the choice of inventory cost-flow method ( say LIFO to FIFO), create a DTL or a DTA ?
Yes. However this will only be for countries that do not prepare their financial statements under US GAAP (i.e. IFRS). US GAAP requires firms to use LIFO for tax accounting as well therefore (temporary) differences are not possible.
I suppose that it could, if you used, say, LIFO for your financial statements and FIFO for your tax return.
If I recall correctly, the requirement is that if you use LIFO for your financial statements, you must use LIFO for your taxes as well. Is the inverse also true? (I’ve never heard anyone cite it, so I have no idea.)
Fair ! so a DTL is created in that case if LIFO financial statements and FIFO for tax returns
and a DTA is created in case of an impairement ?
The point is, you’re not allowed to do this; the LIFO conformity rule states that if you use LIFO for your financial statements, you must use LIFO for your tax return.
Yes, because impairments will reduce your future income taxes, so that’s a future benefit, so that’s a DTA.
Thank you ! crystal clear now.
My pleasure.
Good to hear.