All our Essay orders are Original, and are written from scratch. Try us today at 30% off

Do you think that they should make the change? Why or why not?

Want answers to the assignment Below?

Text or Whatsapp Olivia at +1 (307) 209-4351


 

You are the CPA for a large firm that is having a rough year and may not make analysts’ forecasts. The firm is considering changing from LIFO to FIFO, as that will increase income and may put them at the point of making the analysts’ forecasts. Do you think that they should make the change? Why or why not?

Add citation and reference

Do the discussion first then response each posted

Posted 1

There are pros and cons to both the LIFO and FIFO inventory methods. Under the last-in, first-out (LIFO) method, the last unit to arrive in inventory is sold first. Under the first-in, first-out (FIFO) method the oldest unit is sold first. Determining which one to use depends on the nature of the organization and the product it offers. FIFO is more realistic, as most business aim to distribute old units before the newest ones. In this situation, I would recommend continuing the LIFO method. Changing the inventory approach to meet analyst forecasts will cause inconsistency in financial documents. Repeatedly switching from LIFO to FIFO will eventually create confusion and discrepancies within reports. Stay consistent to generate true results so that managers can develop effective strategies to improve the firm.

Posted 2

Subscribe

FIFO and LIFO are inventory valuation methods that can produce very different balances. Switching from one method to another can have significant impact on financial statements (Cromwell, 2019). If a company decided to change their valuation method to better support their analysts’ forecast, they would also need to determine if the change would have a significant impact on the financial statements and then if prior statements need to be restated. Financial statements usually show multiple years of data for investors to track the business over time. If it is practical under GAAP, then the company changes inventory valuation methods will need to recalculate and restate their prior inventory valuations (Cromwell, 2019).

No matter the decision on restatement, the company must disclose the change in the footnotes of the financial statements and provide detail about what the effect of the shift could be (Cromwell, 2019). This ensures that the company is compliance with the full-disclosure principle and gives investors a chance to make their own decisions regarding the company. The IRS recommends maintaining consistency regarding an inventory valuation method but does allow changes for various reasons. The company must notify the IRS and obtain permission for the first tax year of implementation (Cromwell, 2019). It may be more difficult to gain IRS permission to transfer from LIFO to another method.

If approved, the firm can make the switch to FIFO and it likely will increase income, but the company will need to determine if this is a short or long-term solution to their problems. The switch to FIFO will also increase the taxes the company is due to pay. Ultimately, the company’s investors will likely know they are not going to meet their forecast and the company will need to decide if the change is worth the additional changes and taxes to be accounted for.

Cromwell, J. (May 8, 2019). Chron. Rules for Changing from FIFO to LIFO. Small Business. Retrieved from https://smallbusiness.chron.com/rules-changing-fif

Posted 3

Subscribe

If the firm is using FIFO (First In First Out method), the oldest inventory is assumed to be sold first. This method is most suitable for time sensitive products like perishable goods or electronic goods. The inventory value in the balance sheet will reflect current costs, though matching of revenue and expenses will not be accurate. The FIFO method will produce high profits, as older cheaper inventory is sold at current selling price.

If the firm is using LIFO (Last In First Out method), the inventory last purchased is assumed to be sold first. Therefore, the matching of revenue and expenses in the financial statements will reflect a correct picture, though the inventory will be an undervalued asset in the balance sheet (old inventory costs). This method is suitable for non-perishable goods which are not time sensitive and don’t need to be updated with technological improvements. LIFO method will produce less than FIFO profits.

Internationally, LIFO is not allowed as per International Financial Reporting Standards (IFRS) in countries that follow the IFRS standards. Since FIFO profits are higher, the income tax liability will also be more. Also, if the taxpayer uses LIFO to report taxable income in the United States, the same method should be used for US GAAP financial statements preparation.

If the firm wants to change from LIFO to FIFO to improve profits, that can be done. However, it will take some time to complete the changes and the firm will also incur costs. Once the firm changes to FIFO for financial statements, it should also change to FIFO for income tax purposes and be ready to pay more income taxes

Testimonials

Mh! not bad…

The worst part ever was to find my deadline postponed for 1 hour ! They couldn`t finish the essay within...

Best Service

The book review I asked for is so amazing! Endless thanks to your team for completing my review and for...

Comes through every time

I have used this website for many times, and each time they found perfect writers for me and they produce...

No Complaints So far Guys

Yeah …I really like all the discounts that they offer, the prices are very flexible. Plus they have different promotions...

Best

They look cool and trustworthy enough to me. I gather they made discounts as their prices are quite affordable if...

Great Job

Great job! Those were you, guys, who made my coursework perfect in time according to all my requirements. I will...

CLICK HERE  To order your paper

About Scholarfront Essay writing service

We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.

How It Works

To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.

Are there Discounts?

All new clients are eligible for upto 20% off in their first Order. Our payment method is safe and secure.

 CLICK HERE to Order Your Assignment

 

ORDER WITH 15% DISCOUNT

Let your paper be done by an expert

Custom Essay Writing Service

Our custom essay writing service has already gained a positive reputation in this business field. Understandably so, all custom papers produced by our academic writers are individually crafted from scratch and written according to all your instructions and requirements. We offer Havard, APA, MLA, or Chicago style papers in more than 70 disciplines. With our writing service, you can get quality custom essays, as well as a dissertation, a research paper, or term papers for an affordable price. Any paper will be written on time for a cheap price.

Professional Essay writing service

When professional help in completing any kind of homework is all you need, scholarfront.com is the right place to get it. We guarantee you help in all kinds of academia, including essay, coursework, research, or term paper help etc., it is no problem for us. With our cheap essay writing service, you can be sure to get credible academic aid for a reasonable price, as the name of our website suggests. For years, we have been providing online custom writing assistance to students from countries all over the world, including the United States, Canada, the United Kingdom, Australia, Italy, New Zealand, China, and Japan.