Hey guys,

If iw ere to change FIFO to LIFO

  • that would reduce cogs and increase income by the change in lifo reserve x (1-t)
  • the balance sheet inventory will increase by the lifo reservece + (1-t)

however, theres a disparity where my net income increase is not the same as my inventory increase.

wouldn’t this create a disparity in my formula asset - liability = equity since income flows into retained earnings?


  • Inventory increases by LIFO Reserve


  • Retained earnings increase by LIFO Reserve × (1 - t)


  • If taxes on adjustment is not paid, Tax liabilities increase by LIFO Reserve × t

Note: If taxes paid, then reduce Cash by LIFO Reserve × t

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When costs are rising (the usual situation), changing from FIFO to LIFO will increase COGS and decrease net income.

Assets increase by the full LIFO reserve after tax. You would now need to deduct the cash by the loss in the tax saving, I believe?

E: I just saw your statement at the bottom, sorry

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