Guys, Would the following be true: If a company had the following opening balances: Beginning inventory = $2m LIFO reserve in the Beginning Year = $1m and no purchases for the year, but had sales of $1.5m, would the lifo reserve decrease by $0.5m?
No. It only means they have 0.5 mil remaining in the LIFO inventory.
It will actually be lifo liquidation … peeling old layers of invetories (cheaper cogs in inflationary environment) will produce opposite results to normal lifo application. All adjustments will be reversed, for example, instead of substractnig change in lifo reseve from cogs we will adding it … " would the lifo reserve decrease by $0.5m? " ----> lifo reserve will decline we cannot calculate the exact amount of decline of lifo reserve from the data given in your question. Company management discloses the amount of decline of lifo reserve in footnotes.
Excellent, thanks.