Synthesis - How to discipline LIFO Reserve

Folks are the formulars correct? 1. FIFO Inv = LIFO inv + LIFO Reserve 2. FIFO cogs = LIFO cogs – ( Change in LIFO Reserve) 3. FIFO net income = LIFO net income + (Change in LIFO Reserve)( 1 – t ) Who can provide for Deferred tax and Equity 4. FIFO deferred taxes = LIFO deferred taxes … 5. FIFO equity = LIFO equity …

Grace, When we restate the B/S with LIFO inventory+LIFO reserve, do we have to adjust the Income Statement with that LIFO reserve? Book says we need to do so if there is LIFO liquidation. But I have seen two sample questions that don’t say anything about LIFO liquidation but still adjusted the Income Statement (NI - LIFO reserve(1-t)). How about advance from customes? Where does it go, deferred Income or debt?

Tom, I am just like u… I have concerns on synthesis… these u have raied and many more more are the questions I have on synthesis… any other thoughts folks…on how to treat these issues?

I found this thread by searching for answers to this very same question, so clearly I can be of no help to you. Anyone else know? Under what circumstances does adjusting inv from FIFO to LIFO change the I/S as well as the BS?

When the company uses FIFO accounting and they are converting to LIFO accounting. Then your COGS has to change and your inventory will change as well. Thats my hunch…

Deep, I am confused with LIFO reserve. My question is that if comanay A is already using LIFO inventry method, then we have to restate the inventory on the B/S on Inventory + LIFO reserve. I got that much. Why should we reduce the COGS by LIFO reserve (hencce increase Net Income by LIFO reserve (1-tax))?? So confused with that. Even CFA sample has the same problem.

They are two different questions. It depends if your doing FSA Synthesis or if the company is changing their accounting methods completely. If its for FSA synthesis, then you want your inventory to be in FIFO and your COGS to be in LIFO - regardless of the accounting method they are using. If its changing their accounting principles completely and they used to be using FIFO, then you need to convert both the B/S and I/S to LIFO.