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made as to whether there has been a quantitative change in the
inventory of each pool during the period in question, and (3)
there must be a determination of the manner in which increments
to (i.e., increases in the quantity of) each pool are to be
valued. Id. We are here concerned mainly with the third of
those determinations.
Two basic LIFO computational methods are permitted by the
income tax regulations: the specific goods method, a measure of
inventory in terms of physical units of individual items, see
sec. 1.472-2, Income Tax Regs., and the dollar-value method, a
measure of inventory in terms of dollars, see sec. 1.472-8,
Income Tax Regs. Each method is designed to make the three
determinations previously identified. Gertzman par. 7.04[1], at
7-30. We are here concerned with the dollar-value method.
–- Dollar-Value Method of Valuing LIFO Inventories
Gertzman explains the dollar-value method as follows:
Under the dollar-value method, the common
denominator for measuring items within a pool is not
units, such as pounds or yards, but dollars as of a
particular date. Thus, a reduction in the number of
inventory items within a pool will not reduce the LIFO
value of the inventory as long as the total inventory
stated in base-year dollars (i.e., the base [year] cost
of the inventory) is not reduced. The base [year] cost
of an item is generally what the item cost or would
have cost at the beginning of the year for which LIFO
was first adopted.
Id. par. 7.04[3], at 7-36 (fn. ref. omitted). The dollar-value
method is described similarly in section 1.472-8(a), Income Tax
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