Dow A. and Sandra E. Huffman, et al. - Page 6

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          concerned here with certain aspects of LIFO.                                
          The LIFO Method                                                             
               –- Introduction                                                        
               We have said “the overriding purpose of * * * LIFO * * * is            
          to match current costs against current income.”  UFE, Inc. v.               
          Commissioner, 92 T.C. 1314, 1322 (1989).  Gertzman describes the            
          objective of the LIFO method similarly:  “The objective of the              
          LIFO method is to match relatively current costs against current            

               4(...continued)                                                        
          retailer acquires identical products at the following times and             
          costs:                                                                      
                     Date      Number    Unit Cost     Total                          
                    Jan. 1    10        $1.00     $10.00                              
                    Apr. 1    15        1.02       15.30                              
                    July 1    15        1.04      15.60                               
                    Oct. 1       10     1.06       10.60                              
                              50        51.50                                         
          Assuming that 12 units remain on hand at the end of the year, it            
          is necessary to determine what portion of the $51.50 aggregate              
          cost of goods available for sale should be allocated to those 12            
          units.  The balance will be allocated to the 38 units sold and              
          will be deemed the cost of goods sold.                                      
               Under FIFO, the ending inventory would be deemed to cost               
          $12.68 (consisting of a layer of 10 units at $1.06 a unit and a             
          layer of 2 units at $1.04 a unit).  The balance of the cost of              
          goods available for sale, $38.82, would be allocated to the 38              
          units sold and would be deemed the cost of goods sold.                      
               Under LIFO, the ending inventory would be deemed to cost               
          $12.04 (consisting of a layer of 10 units at $1.00 a unit and a             
          layer of 2 units at $1.02 a unit).  The balance of the cost of              
          goods available for sale, $39.46, would be allocated to the 38              
          units sold and would be deemed the cost of goods sold.                      






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