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of the increment in the quantity of goods. In the event of a
decrement, the decrease is subtracted from the annual layers of
the period's beginning inventory in reverse chronological order.
Those procedures are applied to each LIFO pool, which generally
maintains its own set of BLS indexes, cost complement, layer
structure, and other pool attributes.
Having acquired a basic understanding of the LIFO Retail
Method, we can better analyze Dr. LaRue's criticism of the
Divisions' shrinkage methods. Dr. LaRue believes that the
process of making corrections to shrinkage estimates in the
subsequent year is inadequate because changes in LIFO pool
attributes, such as BLS indexes and cost complements, prevent
corrections from accurately offsetting previous shrinkage
estimation errors in the earlier year. In addition, Dr. LaRue
asserts that the varying tax effects of shrinkage estimation
errors among LIFO pools, which is a product of differing pool
attributes, even undermines the validity of a methodology that,
in the aggregate, produces an accurate estimate of taxable year
shrinkage. In sum, Dr. LaRue believes that cycle counting and
the LIFO Retail Method impose “significant additional demands on
the design and implementation of a methodology that might be
8(...continued)
retail value assigned to those purchases.
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