lifo reserve

CFA Level I
#1

I saw a question in sample test 3 to do adjustment for financial statemetn for LIFO reserve. I put LIFO reserve to be added to ending inventory. Correct answer is LIFO reserve to be subtracted from cost of goods sold. Did I miss anything? I thought the adjustment is for ending inventory. No clue on what is question.

#2

I think you mean “change in LIFO reserve to be subtracted from COGS”. From what I understand: FIFO Inventory = LIFO Inventory - Delta(LIFO Reserve)

#3

actually: Inventory (FIFO) = Inventory (LIFO) + LIFO RESERVE COGS (FIFO) = COGS (LIFO) - Delta(LIFO RESERVE)

#4

correct… my bad. thx Bluey easy marks… FATAL error. Atleast I won’t make it in the exam

#5

And while you are at it, there are a couple more: NI (FIFO) = NI (LIFO) + Delta LIFO Reserve * (1-T) RE (FIFO) = RE (LIFO) + Ending LIFO Reserve * (1-T) CP

#6

cpk123 Wrote: ------------------------------------------------------- > And while you are at it, there are a couple more: > > > NI (FIFO) = NI (LIFO) + Delta LIFO Reserve * > (1-T) > RE (FIFO) = RE (LIFO) + Ending LIFO Reserve * > (1-T) > > > CP I get the NI part, but not the RE part, wouldnt RE be the same as NI?

#7

no, remember RE is the combined effect of all past NI additions to the account. So now when company moves from LIFO to FIFO – entire change in the LIFO Reserve would have to be pushed in, because it is a cumulative effect.

#8

Another way to remember that is simply that the change in equity balances the change in the asset, and it’s easy to remember how the asset changes.

#9

thanks bsivia… i’ve always been wondering that, but never recalled reading it in the text