FSA adjustments

To adjust fin statements to reflect economic reality: do we have to use FIFO based accounting or LIFO?. Or is it LIFO for I/S COGS and FIFO (LIFO+LIFO Reserve) for inventory.? So when they say LIFO accounting, does it refer to only I/S or B/S as well.? please comment.

Dsylexic Wrote: ------------------------------------------------------- Or is it LIFO for I/S COGS and FIFO > (LIFO+LIFO Reserve) for inventory.? I think this is correct. That way you have the most recent inventory/COGS prices on both the IS and the BS. You definetly want to add the LIFO reserve to the balance sheet. I can confirm that for sure. > > So when they say LIFO accounting, does it refer to > only I/S or B/S as well.? > > please comment.

i think if it says “LIFO accounting” it means that LIFO is used for both I/S and B/S. but, a good analyst will use LIFO for I/S and FIFO for B/S for the whole “economic reality” thing. but a firm will never mix on their real statements

LIFO accounting gives more accurate I/S. Then an adjustment can be easily made to B/S using LIFO reserve.

so if the question just says " company use lifo accounting" ,can we conclude that it may have high earnings quality?

Dsylexic Wrote: ------------------------------------------------------- > so if the question just says " company use lifo > accounting" ,can we conclude that it may have high > earnings quality? From an inventory accounting perspective, but that isn’t the only thing that goes into quality earnings (as you know).

agree mwvt, but glad to know LIFO accounting is a key word to look for while reading vignettes related to fsa synthesis. thanks

Just remember to make the adjustment on the BS as maratikus pointed out.