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therefore pay a smaller amount of pay a larger amount of income taxes

income taxes in the near term. in the near term.

Financial There are no GAAP or IFRS IFRS does not all the use of the LIFO
reporting restrictions on the use of FIFO in method at all. The IRS allows the use
reporting financial results. of LIFO, but if you use it for any

subsidiary, you must also use it for all
parts of the reporting entity.

Record There are usually fewer inventory There are usually more inventory
keeping layers to track in a FIFO system, layers to track in a LIFO system, since

since the oldest layers are the oldest layers can potentially
continually used up. This reduces remain in the system for years. This

record keeping. increases record keeping.

Reporting Since there are few inventory layers, There may be many inventory layers,
fluctuations and those layers reflect recent some with costs from a number of
pricing, there are rarely any unusual years ago. If one of these layers is

spikes or drops in the cost of goods accessed, it can result in a dramatic
sold that are caused by accessing old increase or decrease in the reported

inventory layers. amount of cost of goods sold.

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.
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