Lifo Liquidation at Life

Lifo Liquidation. Lifo liquidation causes distortion of net operating income and may become a reason of higher tax. A lifo liquidation occurs when an organization using the last in, first out concept to track its inventory costs uses up its oldest inventory layer.

Lifo liquidation leads to distortion of net income and substantial tax payments. Lifo liquidations, which may also be referred to as decrements, refer to situations when inventories in old lifo layers, carried at their (presumably) lower acquisition costs are liquidated. Lifo liquidation occurs when a firm sells more units than it purchases in any year.

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These old piles stock or better known as layers in accounting community are usually not consumed as entity keeps on buying newer inventory at newer rates on regular basis. When a company using the lifo inventory costing method, i.e. To understand the lifo liquidation problem assume that xyz company has 30,000 ponds of steel in its inventory on december 31, 2004. This can occur because a company's demand is outstripping available inventory and sales numbers are high,.