- 20 - Under the accountant’s method, for years in which he determined that there had been an increment to an inventory pool, his failure to index the increment resulted in his understating the yearend LIFO value of the pool (assuming that the cumulative index, expressed as a percent, was greater than 100%), which, in turn, resulted in (1) an unwarranted increase in his computation of the cost of the goods sold from the pool, (2) an understatement of the gross income attributable to those sales, and (3) an overstatement of the LIFO reserve attributable to the pool.11 For years in which he determined that an inventory pool had been liquidated in whole or in part, his past failures to have indexed any increments remaining in the pool at the beginning of the year resulted in his computing too low a cost of goods sold from the pool, which, in turn, resulted in an overstatement of the gross income attributable to those sales. The accountant’s error did not result in the permanent omission of any amount of gross income by any member. The distortion resulting from the accountant’s error can be seen in the following example: T, a merchant, elects to compute her LIFO inventory using a dollar-value method and begins her first year under the dollar-value method (year 1) with 100 units of an inventoriable item with a base-year cost of $1.00 a unit. Later 11 The yearend LIFO value of the pool was understated because, even under the LIFO method, inventory cannot be carried at a cost lower than the actual cost of purchasing the inventory. Cf. Fox Chevrolet, Inc. v. Commissioner, 76 T.C. 708, 732 n.15 (1981).Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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