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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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