Which method (FIFO or LIFO) would be preferred for income toll purposes surrounded by period of rising prices? WHY?
Answers:
LIFO. With LAST-IN FIRST-OUT inventory costing, in a spell of rising prices, the cost of stuff will be complex. Since cost of products is difficult, the lattice income from gross revenue will be lower. Less lattice income to be tax on finances smaller number income duty to reward.
FIFO produces a greater profit integer than LIFO, especially within period of rising prices. When within is inflation, commodities bought a long time ago cost smaller amount than merchandise bought not long. The price received only just when the produce are resold is superior than the price received a long time ago, for like products.
The purpose of the Tax Collectors is to get hold of as much import tax from you and your company as possible. That's why they want you to use accounting methods which show you producing more profits, not smaller number. If your company uses LIFO, when you do your taxes, it will show smaller quantity profit, and the Government will acquire smaller amount import tax from you.
In Canada, LIFO is not all right for income excise purposes. You hold to use FIFO.
For income import tax purposes LIFO would be better. LIFO is Last In, First Out. Which within term of rising prices, medium cost of products sold would be greater than using FIFO, thus reducing taxable income, thus reducing income tax. For book and financial statement purposes FIFO would be better because it would be a sign of lower cost of stock sold, increasing book income, and making company look better to the public.