- 7 -
revenues to compute a meaningful gross profit.” Gertzman par.
7.02[1], at 7-4. Gertzman posits that businesses have a
continuing need for a certain level of inventory, and he
justifies LIFO on the ground that the changing costs associated
with maintaining that level of inventory should be expensed in
the year incurred. Id. Gertzman believes that the LIFO
objective of matching is achieved because the costs associated
with changing prices are generally reflected in the cost of goods
sold. Id. at 7-5. To the extent so reflected, those costs (when
increasing) are, in effect, treated as deductible expenses.5 See
id. Because the LIFO method matches current revenues against
relatively current costs, Gertzman views the LIFO method of
accounting as producing a “meaningful” or “true” measure of the
gross profit from sales for a period. Id. at 7-4 & 7-5.
For a taxpayer whose ending inventory computed under LIFO
reflects the lower prices of antecedent purchases (rather than
the higher price of current purchases), the income tax advantage
of LIFO is obvious: a reduction in current income, leading,
generally, to a reduction in current income tax. The potential
for increased gain on account of the allocation of the lower
5 In the example supra in note 4, the use of LIFO instead
of FIFO increased the cost of goods sold by $0.64 (from $38.82 to
$39.46). That $0.64 represents the inflation that had occurred
during the year in the cost of the 12 items that remained on hand
at the end of the year ((10 units x increase in price of $0.06 a
unit) + (2 units x increase in price of $0.02 a unit)).
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