Free Essay

Lifo Arguments

In: Business and Management

Submitted By piggy417
Words 947
Pages 4
1. Arguments for and against LFO abolition in the US a) What are the arguments in favour of retaining LIFO? The arguments are being made on a number of different grounds so be clear to separate these out. b) What are the arguments in favour of the US abolishing LIFO? c) Should decisions on matters such as this be made on the basis of what is the most appropriate from an accounting perspective (i.e. principles) or from the perspective of the impact of the decision on the real economy (i.e. profits, jobs, growth)? d) Decide which of these two arguments you support on balance and justify your choice.

a. What are the arguments in favour of retaining LIFO? The arguments are beint made on a number of different grounds so be clear to separate these out. Some business community in favour of retaining LIFO. Especially manufacturers, oil and gas companies, and other business that carry large inventories. Their taxes could increase a lot if they could no longer use LIFO. LIFO is particularly important to companies that have slow-moving inventory – such as industrial manufacturers and distributors – and are therefore vulnerable to rising prices. LIFO accounting is a “timing issue”, rather than a tax gimmick. LIFO accounting reverses itself when demand drops. When companies reach lower-cost inventory layers last year as demand solwed, and at that point, profits rose under LIFO accounting and the company had to pay more in taxes. The same is true when deflation sets in. As the price of replacement inventory drops, taxable income increases, and so does a company’s tax obligation. Without LIFO, there is a “mismatch between what it’s going to cost us to put inventory back on the shelf and what we bought it for six months ago, when it may have cost less.” The elimination of LIFO is a cash-flow issue. Smaller companies with high LIFO reserves and low cash flows could run into problems. Some large companies say the change would still hurt, because if they pay more money in taxes, they won’t have enough money to pay money in wages. So “LIFO REPEAL” is an anti-employment move. The sting of LIFO repeal also will be felt by smaller companies that don’t have robust information-technology systems. Companies may also need to hire more cost accountants to ferret through the inventory layers.

b. What are the arguments in favour of the US abolishing LIFO? The White House made the proposal part of a loophole-closing package and had hoped that Republicans would b able to convince themselves that the change didn’t constitute a tax increase. Although LIFO accounting saves the company money, it does so by making the company’s profit seem smaller. Management would rather have a higher profit on paper, even at the cost of lower real return for the stockholders once taxes are paid. IFRS do not allow using LIFO for accounting. Larger companies with strong cash flows likely will weather the one-time charge of converting from LIFO to FIFO of another methodology without much problem. That is because for the largest companies, the charge represents a small percentage of their annual cash flow.

c. Should decisions on matters such as this be made on the basis of what is the most appropriate from an accounting perspective (i.e. principles) or from the perspective of the impact of the decision on the real economy (i.e. profits, jobs, growth)? The decisions should be made on the basis of what is the most appropriate from the perspective of the impact of the decision on the real economy. Once a decision was made, it may make a big impact on the economy. Of course, accounting principle is important, but the aim of making principles is to stimulate the economy. So the profit will increase, there will be more job opportunities and there can be a economic growth. No matter what decision will be made, it should be made from the perspective of the impact of the decision on the real economy. Only in this way can we make the best and most appropriate decision for the economy.

d. Decide which of these two arguments you support on balance and justify your choice. In my opinion, FIFO may be the best choice. In general, the FIFO method provides is applicable for more business scenarios than LIFO and also provides better accounting. Advantages include: * Goods are sold or disposed in a logical and systematic manner. * The uniform and single file flow of goods provides efficient control of materials. This control is needed for goods that can be subjected to decay, deterioration, and quality or style change. * The LIFO method is not supported by the IFRS. Many countries follow IFRS framework. * More records have to be maintained and for a longer duration using the LIFO method. Most businesses carry at least some inventory at all times. With LIFO this could mean using records of goods acquired several years ago. * When older goods are finally sold, the price could be significantly different from the cost of these goods. This could result in unexpectedly large paper gains or losses, which could have tax implications. In general, LIFO accounting is not recommended, for the following reasons: * It is not allowed under IFRS, and a large part of the world uses the IFRS framework. * The number of layers to track can be substantially larger than would be the case under FIFO. * If old layers are accessed, costs may be charged to expense that vary substantially from current costs. * In essence, the primary reason for using LIFO is to defer the payment of income taxes in an inflationary environment.

Similar Documents

Free Essay

Assignment 2 Algo

...1. Suppose that some application requires using two stacks whose elements are of the same type. A natural storage structure of such a two-stack data type would consist of two arrays and two top pointers. Explain why this may not be a space wise efficient implementation. A stack is a last in first out (LIFO) data type. A stack can be implemented using arrays where the data is stored in continuous memory locations. We have two operations in a stack push and pop. Since it has continuous memory allocated, if we try inserting data it gets saved in that free space present in either of the stacks. This is not a space wise efficient implementation because data is stored statically. In this case one stack can be full while the other is empty. 2. Using the basic queue and stack operations, write an algorithm to reverse the elements in a queue. Create an empty stack While the queue is not empty Remove a value from the queue and push it onto the stack While the stack is not empty Pop a value from the stack and add it to the queue. 3. Assume that 'Stack' is the class described in this section with 'StackType' set to into and STACK_CAPACITY or myCapacity set to 5. Give the value of 'myTop' and the contents of the array referred to by 'myArray' in the Stack s afer the code segment is executed, or indicate why an error occurs. Stack s; s.push(1); s.push(2); s.push(3); s.pop(); s.push(4); s.push(5); s.pop(); s.pop(); In a stack it is last...

Words: 351 - Pages: 2

Premium Essay

T.J. Rodgers Sister Gormley Case Study 5-1

...of approximately 1,000 women and was, at the time the letter was written, the beneficial owner of a number of Cypress shares. The letter was a form letter, and it carried the stamped signature of Doris Gormley, OSF. In the letter, Sister Doris, speaking for the Sisters of St. Francis of Philadelphia as a Cypress shareholder, expressed the view that a company "is best represented by a Board of qualified Directors reflecting the equality of the sexes, races, and ethnic groups." The letter went on to say that it is the congregation's policy "to withhold authority to vote for nominees of a Board of Directors that does not include women and minorities." In response to the letter, an individual wrote an argument in defense of our current selection process. On top of this defensive argument, the writer outlined the pitfalls associated with investors questioning our practices on the grounds of creating “responsible corporations”. This response letter is detailed and outlines facts and figures to support its claims concerning these pitfalls. Yet, this letter espouses its point using a confrontational tone and terminology designed to insult the intended audience. The individual has also proposed sending this letter to all Cypress shareholders and a select group of sympathetic veterans of the affirmative-action debate.   Discussion   The response letter can be broken down into three parts. The first part is outlines the current selection process for the board of directors as well...

Words: 942 - Pages: 4

Premium Essay

Philsophy Terms

...Glossary for Philosophy 101 Logic – the study of argument, the study of inference. Statement/proposition – something that is true or false. Argument – a set of statements, some of which are premises and one of which is the conclusion. The conclusion is said to follow from the premises. Premise – a proposition in an argument from which the conclusion follows. Conclusion – a proposition in an argument which follows from the premise(s). Valid argument – an argument whose structure is such that if the premises are true, the conclusion must be true. (Alternative “negative” definition: an argument whose structure is such that it is impossible for its conclusion to be false when its premises are true.) Invalid argument – an argument whose structure is such that it is possible for its conclusion to be false when its premises are true. Sound argument – a valid argument with true premises. Tautology – a proposition which is always true, due to its logical structure. (Self-)Contradiction – a proposition which is always false, due to its logical structure. Contingent proposition – a proposition which can be either true or false, due to its logical structure. reductio ad absurdum – (“reduction to the absurd”), proof by contradiction – a form of argument in which we attempt to reach a contradiction, which is then used to deny the supposition that led to the contradiction. Necessary and sufficient conditions A condition is said to be necessary for something when that condition...

Words: 445 - Pages: 2

Premium Essay

Discipline

...well as three examples to support each definition. All answers must be typed – print out a final copy for teacher and self E.C. = +5pts on Quiz and notes if completed by the end of the hour today 1. |wordnetweb.princeton.edu/perl/webwn | | | | |Definition |Example #1 | |Example: |Claim or argument is rejected on the basis of some irrelevant |Why should your views on welfare reform matter when we all know | |Ad Hominem |fact about the author of or the person presenting the claim or |that your parents make a lot of money. | | |argument | | |Tu Quoque | An attempt to discredit the opponent's position by exposing |Bill: “It is wrong to use animals as clothing. | | |his failure to act consistently in accordance with that |Ted: “But you are wearing a leather jacket.” | | |position. | ...

Words: 1040 - Pages: 5

Premium Essay

Comp2 Final

...goes on by breaking several of these words down to their base meaning and then places them into context, for example “virtually spotless” a claim made on nearly every dish and laundry cleaning product on the market. The word virtually is used by advertisers as a almost guarantee but actually by definition means not in fact. Several of these weasel words are brought to trial and put to the sword in the same fashion. William Lutz's logos is very powerful in the argument using the words own definition and the advertisements writers lack of context to let it defeat itself. His use of pathos is strong points to warn his readers to look deeper at words such as “like magic” and “helps...”. His ethos in the argument do relay a sense of reliability in the piece, but could be called into question by a more conservative reader for his use of a comical but slightly out of place rewriting psalms 23rd. One problem With These Word I Can Sell You Anything, is a lack of counter argument, or even having room where a counter argument can come into play. An advertiser could argue two strong points ageinst Lutz. One that advertisements aren't written to solely to mislead consumers, and that words like...

Words: 516 - Pages: 3

Premium Essay

Juvenile Reentry System

...describe the continuing issue that the United States faces in regards to repeat offenders. In the article "Stopping The Madness: A New Reentry System For Juvenile Corrections." Author's Scott Sells, Irene Sullivan and Donald DeVore focus on some of the reasons that contribute to youth recidivism and programs that can help minimize this issue. Without first determining the causes of the issue we can not begin to address resolutions. This article focuses on an interview as well as studies and evidence based theories tto combat this issue that we are faced with. The artilce discusses issues that contribute to failing reentry programs which ultimately result in high recidivism in young offenders. Although they provide a strong logical argument, and sufficient evidence the authors do not go into detail the effects of implementing such facilities will have on those who do not have family. Also the authors reasoning for implementing the PLL program is justified but can come across as bias. "Look this was my second committment and here's the problem. I went from this totally structured environment for eight long months back to a totally unstructured home with no real plan before i left [residential]. I am going back to the same home [life]...

Words: 957 - Pages: 4

Free Essay

The Role of Management in Managing Organizational Change a Comparative Review

...CETM11 Portfolio item 1 –A comparative literature review This is worth 30% of your module The following learning outcomes are assessed: Knowledge 1. A critical appreciation of the nature of research and the goals of academic reading, information searching and communication. 2 A critical appreciation of the clarity, scientific approach and structure of academic writing. This item will allow you to get feedback on skills that you need to help with the Research Plan in Portfolio item 2. TASK You are required to do a comparative literature review of the following topics (you may need to customise the title to include the domain) Choose one of the following topics on which to do a comparative literature review (word limit 2000 words): * The impact of personality traits of the project leaders in project success * Managing change management * Communication skills and project success * Network security and social networking * The role of effective IT management strategies in organisations * Assessing risks in home and public access wireless networks * Ethics in the design of business applications You may find the Q5 technique useful to map out the structure of each paper before you do the review. The task You will select a topic then find two or more academic papers that address the topic. You are required to write a comparative review of the topic from the perspective of these papers. This may require you to examine several schools of thought...

Words: 945 - Pages: 4

Free Essay

Crt205 Week 5

...or a phrase that makes something less important, gives a way out if challenged, and specific words to upscale something. Class two devices succeed on unwarranted assumptions. Class three, which is my favorite, is humor or exaggeration. I use this one all the time and never realized that there was a specific name for what I was doing. Class four is using or conforming a definition to meet your needs. The devices when used properly can captivate the audience. If they are used wrong it can get the audience in an uproar very quickly. If the author or speaker uses these devises the way they are intended to one could not argue against them and they would have an air tight opinion. A very experienced person using these devices can convey their argument to any group and have them at least stop and think. If these devices are once again used correctly the claims that are made could sound extremely creditable. It will once again depend on how they are used and if confronted how the author could explain his claims without skipping a beat. If he had to think about the confrontation before he responded I believe that his claims would take a hit, but if his rebutted immediately then that would save him and his...

Words: 310 - Pages: 2

Premium Essay

Critical Thinking

...propositions. eg.I am taller than you, It is raining, She will win the race. Premise- A statement that is offered in support of a conclusion Conclusion - A statement that is held to be supported by a premise or premises eg. All whales are mammals. Moby Dick is a whale. Moby Dick is a mammal. Argument- a set of statements one of which (the conclusion) is taken to be supported by the remaining statements (the premises). • The conclusion is what the speaker wants you to accept. • The premises state the reasons or evidence for accepting the conclusion. Inference- is the process of reasoning from a premise (or premises) to a conclusion (or conclusions) based on those premises. Explanation- tells you why something happened. Argument- tells you why you should believe something. • Arguments have something to prove; explanations do not. eg. 1. Adam stole the money, for three people saw him do it. 2. Adam stole the money because he needed to buy food. Premise-Indicator words: Since, Because, For, as, given that, inasmuch as, for the reason that Conclusion Indicator Words: Thus, Therefore, Hence, Entail(s), it follows that, we may conclude, consequently, so In arguments, premises do not always come before conclusions; conclusions do not always come after premises eg. Religious beliefs cannot be proven. If something is a matter...

Words: 1372 - Pages: 6

Premium Essay

Hum/111 Week 8 Toolwire

...Examining Different Arguments Related to the Choice of a Career Assessment Part A: Critically Evaluating an Argument Build your mindmap. Arts and Sciences (Advantage): Lots of flexibility in career choices: Overgeneralization Arts and Sciences (Disadvantage): Leads to a career in food service –“Do you want fries with that?”: irrational appeal Education (Advantage): The best way to make a difference in the world: overgeneralization Education (Disadvantage): Guaranteed low paying job: either/ or thinking Nursing (Advantage): People always will need nurses: logically sound Nursing (Disadvantage): Too much schooling (according to Theo, the Law student): double standard Information Systems and Technology (Advantage): No other degree concentration is as innovative (according to Grace): irrational appeal Information Systems and Technology (Disadvantage): Too limited in scope for much advancement in business situation (according to Ritesh): Logically Sound Business (Advantage): Infinite career options (according to Ritesh): Logically Sound Business (Disadvantage): Boring work, stuck behind a desk all day: oversimplifying Health and Human Services (Advantage): All the benefits of Arts and Sciences, but vastly more focused and relevant: Logically Sound Health and Human Services (Disadvantage): Job options are all in very un-creative fields.: Irrational Appeal Assessment Part B: Articulating the Steps Involved in Evaluating an Argument Write out the two...

Words: 688 - Pages: 3

Free Essay

Validation of Data

...a pragmatic, hard-science approach to the issues we value and the news we receive we can help minimize the frequency that our trusted news outlets are incorrect. For a more interactive person you can also do more fact checking, but even then fact checking is interpretive as well. For example, I love politifact, but their conclusions are still based in interpretation of data rather than the raw data itself, even though they are really good about it. How do I consider information to lack validity?... Well logical fallacies present in an argument are usually red flags, but we can't assume the data is wrong just because of a fallacy, for that would create a logical fallacy in itself. Next is to compare it to data and experiences I have as either expert or greater knowledge and also understand that anecdotal data is not viable grounds for scientific conclusion, though it can often help me spot weaker bits of information/arguments. Another tactic I take is to look at several sources as the internet is...

Words: 542 - Pages: 3

Free Essay

Stereotyping

...Title: Stereotyping By: Sheila Cowan PHI 103: Informal Logic Instructor: Issac Brown Date: November 07, 2011 Stereotyping, prejudices and discrimination are ways in which society maintains class and status distinctions and disparate rights and resource distribution. Whether stereotypes are personal, socially based or institutionally legitimized, stereotyping uses flawed logic. It universally applies a belief, idea or an observation to a group of people with a specific trait or characteristic. This leads to invalid logic arguments, hypothetical imperatives and categorical imperatives that look something like this (Brown, 2001): • If a person has brown hair they are always less intelligent. When constructed as a universal or categorical imperative it looks like this (Brown, 2001): • People with brown hair are always less intelligent. Nevertheless stereotypes persist. Stereotyping and Discrimination Wherever people must compete for resources or position, stereotyping becomes a powerful tool. Governments and organizational leaders charged with the distribution of these positions and resources often use stereotyping and discrimination as a process of elimination. Therefore, negative stereotyping exists in almost every sphere of participation. It exists in schools, in financial institutions, in nearly every industrial and societal sector. Sometimes, negative stereotyping is less obvious than others are. As demonstrated...

Words: 938 - Pages: 4

Premium Essay

‘Warming’ Not? a Discussion on Whether or Not the Climate-Change Theory Is Facing a Sudden Collapse.

...He states that the climate-change theory is facing a sudden collapse, because of two recent arguments: The first argument being the observations that Monnett and fellow researcher Jeffrey Gleason made in 2004 - of four polar bears drowning after being forced to swim long distances in the open sea, because of the climate changes - are now being questioned and investigated. Monnett has now been put on “leave” due to integrity issues. The other argument being a paper published in the peer-reviewed journal ‘Remote Sensing’ by Drs. Roy Spencer and Danny Braswell. The two scientists had compared the predictions about what the atmosphere ‘should’ do and what satellite data actually showed during the 18 months before and after warming event. They found that the computer models vastly overestimated the greenhouse effect. According to the two scientists the Earth is far more capable of equalizing its own temperature than people might think. Matt Patterson closes the article saying that there is a huge discrepancy between global-warming theory and actual, observable reality. Therefore, he claims that the climate-change theory is facing a sudden collapse. Jerrald Hayes, the author of “Matt Patterson & The New York Post Clueless About The Climate” writes his personal perspectives on various topics in his blog. In the blog he is very critical towards Matt Pattersons article and his arguments...

Words: 762 - Pages: 4

Free Essay

Human Resources

...I played the role of a mountaineer in the Everest Simulation. From the very beginning I had problems identifying with my role. So I started my expedition with an apathy towards my role. After a while, at camp 2, my health became critical. I understood my condition perfectly, analyzed the given information and asked for the correct treatment, which helped in getting the team an additional bonus point. But as the task progressed, I could see myself focusing on my personal goals rather than the team goals. Most of the team members were very vocal about their personal goals and were getting into arguments with each other. I had team goals in my mind at the beginning, but once other team members started focusing on their personal goals, I swiftly changed my priorities. At camp 4, I put my foot down and stayed there for a day to gain personal points. There was also an increase in conflict between other team members and me. I felt it was unjustified as everybody else in the team was trying to complete his personal goals. I felt this situation arose because we did not plan properly as a team and there was no clarity about the team goal. At every stage, lack of information and strong leadership was making me more furious and unsure about my performance. Ultimately, we could complete only 70% of the team goals, while my personal goal completion was 71%. I attribute my poor performance to many factors. First of all a lack of flexibility in choosing my own role, kept me dissatisfied until...

Words: 505 - Pages: 3

Premium Essay

Logical Fallacies in Philosophy

...conclusions. Without the use of this logic errors can occur, which in philosophy are called logical fallacies. Mere Assertion The first logical fallacy I am going to define is mere assertion. This is an argument of opinion. There is no guarantee that what you say will be expected. But all opinions whether they are believed to be true or not must be supported by evidence. Here is an example of a mere assertion fallacy. My cats love me because they sleep on my bed. Also when I open their cat food they come running, so they must love me. Both of these statements are not supported by evidence. They are just statements of opinion that I believe to be truth. Circular Reasoning The second logical fallacy I am going to define is circular reasoning. This is an argument where your conclusion and premise are the same. It is an argument that asks you to simply accept the conclusion without real evidence. Also it can be an argument that simply ignores an important assumption. So to avoid this fallacy you cannot just assume or use as evidence that very thing you are trying to prove. Here is an example of a circular reasoning fallacy. When people murder they do it because they are ignorant. So this means only ignorant people murder. This argument only shows that you have restated it using different wording. It does not give us any reasons why we feel people murder. Ad Hominem The...

Words: 1313 - Pages: 6