FIFO Cash Tax


in a mock exam there was a question asking for the adjusted current ratio after changing LIFO to FIFO.

I just added the LR onto Inv and did the normal CR however the answer suggests that Inv rises by the LR and cash reduces by LR x T

I have not seen anything for this in the curriculum anywhere or EOCs - can anyone elaborate?

You usually assume that you would have paid the additional income taxes, so cash would be decreased by the LIFO reserve times the tax rate.

thank you

You’re welcome.