Inventory Write-Down (FIFO-LIFO)

Hello everyone,

if inventories prices are increasing, LIFO method is less likely to impair its inventory and if it does it will be of a lesser magnitude.

but if inventories prices face downward pressure (ie decrease). In that case, is FIFO inventory the less likely to recognize an impairment?

Thanks for your help


Yes - if inventory prices decrease so much that it goes below the cost of units currently sitting in the inventory. In such case, there is for sure a write down since FV < carry will be ascertained.

Correct. In FIFO, inventory is made up of the most recent purchases which reflect the current lower prices. This will make it less likely to writedown current inventory, at least of a lesser magnitude than it othewise would with a LIFO inventory. Also note, with FIFO reporting company and downward pressure on prices, COGS will be higher (than LIFO), and margins will be lower.