FIFO Cash Tax

[rexthedog]

Hey,
in a mock exam there was a question asking for the adjusted current ratio after changing LIFO to FIFO.
I just added the LR onto Inv and did the normal CR however the answer suggests that Inv rises by the LR and cash reduces by LR x T
I have not seen anything for this in the curriculum anywhere or EOCs - can anyone elaborate?

 

[S2000magician]

You usually assume that you would have paid the additional income taxes, so cash would be decreased by the LIFO reserve times the tax rate.

 

[rexthedog]

thank you

 

[S2000magician]

You’re welcome.