Hi guyz,
I have tried to get a grip of the underlying concept of how to treat tax changes when you change from LIFO COGS/Inventory Method to FIFO COGS/Inventory method. I perfectly understand that when u change from LIFO Method to FIFO method in the period of rising price this translates to a reduction in the LIFO COGS carried on the income statement by changes in the LIFO Reserve and the LIFO Inventory is increased by the LIFO Reserve. (I guess this is pretty straight forward).
When “No changes” in tax rate i know Net Income is increased by Change in LIFO Reserve (1 - Tax rate) but how Inventory increase is reflected to keep the balance sheet balance I still dont understand.
Now for Tax changes eg 2012 tax rate of 30% changed to 35% in 2013 when changing from LIFO to FIFO costing method. To be honest i do not understand the underlying principle how it is processed and will be grateful if guyz can put me through on the treatment of tax changes from LIFO to FIFO.
Thank you all
I have tried to get a grip of the underlying concept of how to treat tax changes when you change from LIFO COGS/Inventory Method to FIFO COGS/Inventory method. I perfectly understand that when u change from LIFO Method to FIFO method in the period of rising price this translates to a reduction in the LIFO COGS carried on the income statement by changes in the LIFO Reserve and the LIFO Inventory is increased by the LIFO Reserve. (I guess this is pretty straight forward).
When “No changes” in tax rate i know Net Income is increased by Change in LIFO Reserve (1 - Tax rate) but how Inventory increase is reflected to keep the balance sheet balance I still dont understand.
Now for Tax changes eg 2012 tax rate of 30% changed to 35% in 2013 when changing from LIFO to FIFO costing method. To be honest i do not understand the underlying principle how it is processed and will be grateful if guyz can put me through on the treatment of tax changes from LIFO to FIFO.
Thank you all