Repeal of LIFO: Analysis Based on Industry Data

We discuss the potential consequence of a repeal of the Last-in, First-out (LIFO) inventory method. In 2012, U.S. companies reported a total of 3,207 million LIFO reserves. Assuming a 35% tax rate, this reserve reflects approximately 1,122 million in tax savings. More importantly, there has been a s...

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Bibliographic Details
Published in:The journal of applied business and economics 2016-11, Vol.18 (6), p.11
Main Authors: Frankel, Micah, Hsu, Pei-Hui
Format: Article
Language:English
Subjects:
Accounting records
Cost control
Energy industry
FIFO
Financial reporting
Financial services
International finance
International Financial Reporting Standards
Inventory
LIFO
Manufacturing
Net income
Studies
Tax rates
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Summary:We discuss the potential consequence of a repeal of the Last-in, First-out (LIFO) inventory method. In 2012, U.S. companies reported a total of 3,207 million LIFO reserves. Assuming a 35% tax rate, this reserve reflects approximately 1,122 million in tax savings. More importantly, there has been a significant increase in LIFO reserves during the past decade. If LIFO is repealed, the substantial tax burden might destroy some firms. Although it is crucial to converge toward International Financial Reporting Standards (IFRS), we suggest that regulators be cautious about the potential repeal of LIFO.
ISSN:1499-691X