Page 10 - FINAL CFA I SLIDES JUNE 2019 DAY 8

LOS 28.e: Explain LIFO reserve and LIFO liquidation
and their effects on AFS and ratios., p.186 Session Unit 8:
LOS 28.f: Convert reported AFS from LIFO to FIFO for 28. Inventories
purposes of comparison. , p.186

For LIFO AFS (US GAAP) = FIFO AFS (Balance Sheet) For LIFO AFS = FIFO AFS (Income statement):
1. Add LIFO reserve to LIFO inventory (Dr) 1. Decrease cash (Cr.) by tax rate * LIFO reserve, and
2. Increase retained earnings (Cr.) by LIFO reserve. 2. Decrease retained earnings by tax rate * LIFO reserve

tanties
Example: WC, which uses LIFO, reported EOY inventory balances of $500 (in 20X5) and $700 (in 20X6).
The LIFO reserve was $200 (for 20X5) and $300 (for 20X6). COGS during 20X6 was $3,000. Convert 20X6
ending inventory and COGS to a FIFO basis.