does reserve usually be treated as liability? why LIFO reserve only impact asset,(add to LIFO inventory), but not the liability? before adjust b/s with lifo reserve, where LIFO reserve is recorded ? Thanks.
If I am correct here, and I might not be. The reserve is the IFRS version of AOCI. It’s a component of equity, not a liability. Pre-adjustment, the LIFO reserve is in the notes to the financial statements.
LIFO is purely a GAAP concept. It doesn’t exist in IFRS. On a firm reporting under LIFO, the reserve appears as a footnote disclosure only. Conceptually, the books and records of the company may be tracked on FIFO. Since the financial statements report under LIFO, the LIFO reserve is a contra-asset account which brings the FIFO figure down to LIFO. The LIFO reserve never impacts liabilities or OCI. To convert a LIFO balance sheet to FIFO (and thus make it comparable to IFRS), one would increase ending inventories and equity by the reserve. To convert the income statement to FIFO, one would increase net income and gross profit by the increase in the reserve.