I am no confused as well. When do you adjust equity by the whole LIFO reserve and when do you adjust equity by LIFO reserve * (1-tax rate), with the rest going to deferred taxes.
I was under the impression that if you are currently using LIFO, the adjustment is increase inventory and equity by the LIFO reserve.
im under the same impression
The adjustment to NI I am not sure of. Change in LIFO reserve * (1 - tax) is added?
there should be no adjustment to NI because LIFO COGS is better. Inventory and Equity should be adjusted by LIFO reserve.
jeez…could there be any more threads on this…someone needs to call up harris/tim smaby …or anybody!!
What is this LIFO reserve everybody is talking about?
the example in schweser on page 318 on the FSA book makes the adjustment of adding inventory by the lifo reserve and add it to equity…no adjustment for taxes
there are examples though that NI is changed by life reserve * (1-t)—>which flows into S/E
Is it when a LIFO liquidation is impending?
lol @ mwvt9 Niblita75 in the other thread (Mock 2 23q), the LIFO reserve wash added to NI and DTL as well as to CA because the question specifically asks the effect given the full change to LIFO was made, therefore the full change )regardless of correctness) was included +DTL resxtc +E resx(1-tc) +CA res now if we talk about being conceptually correct, you need to add reserve to convert to FIFO + CA res + E res but for COGS LIFO is kept as is
Why the DTL? Seriously.
mwvt9 Wrote: ------------------------------------------------------- > Why the DTL? Seriously. because of restatement of COGS to LIFO in that particular weird question. Typically nobody would restate COGS to FIFO.
So this was a change completely from LIFO to FIFO thing?
yeah, theres no other explanation for it
just did a problem in book7 last night where this got me. See book7 #1pm Q97. In calculating NOPAT (or “adjusted NOPAT” - which I didnt even know existed) you need to add the change in LIFO reserve before using NOPAT to calc the EVA. Not sure if the same holds for the traditional EBIT-EBT-NI calcs as well: adjusted NOPAT = [EBIT × (1 – tax rate] + [increase in LIFO reserve × (1 – tax rate)]
I just took Mock 2 and I still don’t get this. The IS already has the appropriate method for COGS so why the h@ll would you need to adjust it? that is a circular argument, right? You are adjusting the BS only to appropriately value inventory. It should have nothing to do with NI right? so, do we add the whole ammount to equity or ration some to a DTL? I can’t wait till this is over.
I’m with you Squirrel. Theoretically, I understand that if the question asks for a firm switching methods from one to the other, that you’d make all the changes through the BS and the IS. But I didn’t understand why they did that on the Mock 2.
This is a good question because I always thought you add the LIFO reserve to equity. I just checked the secret sauce it it mentions adjusting to FIFO by adding the LIFO reserve to Inventory and equity - no mention of DTL. Anyone know which it is for sure? *paging JDV*