- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 2. Expense Recognition - Inventory
CFA Practice Question
Survey information reveals that most companies that use LIFO inventory valuation for tax reporting select a different method for financial reporting purposes. True or False?
Correct Answer: False
The LIFO conformity rule requires companies that use LIFO on their tax return to also use this method for external financial reporting.
User Contributed Comments 5
| User | Comment |
|---|---|
| kalps | If LIFO is used in tax reporting then it must also be used in the financial reporting |
| guna | How about when we use FIFO? Any different? |
| UUchi | no different for sure |
| cfaajay | if using FIFO for tax purposes,then you end up giving more tax as net income will be higher,so naturally Company will use FIFO for reporting purpose too else they will report higher income in statement then they actually had after paying taxes ,which will overstate their income,and eventually will be negative for Company ,having said this if after all this Comapny wtill want to use LIFO for reporting then its there problem ,Tax department is happy with the already collected higher amount of tax . |
| zhefuli | So you cannot take advantage of both less income tax and a pretty-looking balance sheet. |