Wils24
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1. What are the conditions that favor the adoption of the LIFO system of material pricing? Explain its working. 2. Explain the circumstances when stock levels cannot be established.
As We all know that LIFO means Last in first Out. Received in Last will be delivered first. Favourable conditions are when prices are going high and high. that will give you a favour to control your cost.
Hi
LIFO MEANS LAST IN FIRST OUT. The procedure is adopted to get the correct costing of its inputs to arrive the cost of production. When the prices of input is varying this concept is used to give the costing close to reality.
Your second question, when we can not establish the FIFO, LIFO, then weighted average concept is used.
This is all Stores Management and mostly used in costing the products.
Should you need any further clasification pl post your question
srinivas

Ans. 1 LIFO is benificial when the price of the product is going high and high, its mean overall price is icreased
Ans. 2. LIFO is not used in which sector where price of product is going down for exmple- Electronic Product. LIFO method is not used to quick wastable product for exmple- Food product

What Does Last In, First Out - LIFO Mean?
An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.

LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.

Since prices generally rise over time because of INFLATION, this method records the sale of the most expensive inventory first and thereby decreases profit and reduces taxes. However, this method rarely reflects the physical flow of indistinguishable items.
LIFO valuation is permitted in the belief that an ongoing business does not realize an economic profit solely from inflation. When prices are increasing, they must replace inventory currently being sold with higher priced goods. LIFO better matches current cost against current revenue. It also defers paying taxes on phantom income arising solely from inflation. LIFO is attractive to business in that it delays a major detrimental effect of inflation, namely higher taxes. However, in a very long run, both methods converge.

If prices have been rising, for example through inflation, this older inventory will have a lower cost, and its liquidation will lead to the recognition of higher net income and the payment of higher taxes, thus reversing the deferred tax advantage that initially encouraged the adoption of a LIFO system. Some companies who use LIFO have decades-old inventory recorded on their books at a very low cost. For these companies a LIFO liquidation would result in an inflated net income and higher tax payments. This situation is usually undesirable; on rare occasions a company in financial stress may abuse this method to temporarily increase income.

What Does Last In, First Out - LIFO Mean?
An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.

LIFO assumes that an entity sells, uses or disposes of its newest inventory first. If an asset is sold for less than it is acquired for, then the difference is considered a capital loss. If an asset is sold for more than it is acquired for, the difference is considered a capital gain. Using the LIFO method to evaluate and manage inventory can be tax advantageous, but it may also increase tax liability.

Since prices generally rise over time because of INFLATION, this method records the sale of the most expensive inventory first and thereby decreases profit and reduces taxes. However, this method rarely reflects the physical flow of indistinguishable items.
LIFO valuation is permitted in the belief that an ongoing business does not realize an economic profit solely from inflation. When prices are increasing, they must replace inventory currently being sold with higher priced goods. LIFO better matches current cost against current revenue. It also defers paying taxes on phantom income arising solely from inflation. LIFO is attractive to business in that it delays a major detrimental effect of inflation, namely higher taxes. However, in a very long run, both methods converge.

If prices have been rising, for example through inflation, this older inventory will have a lower cost, and its liquidation will lead to the recognition of higher net income and the payment of higher taxes, thus reversing the deferred tax advantage that initially encouraged the adoption of a LIFO system. Some companies who use LIFO have decades-old inventory recorded on their books at a very low cost. For these companies a LIFO liquidation would result in an inflated net income and higher tax payments. This situation is usually undesirable; on rare occasions a company in financial stress may abuse this method to temporarily increase income.

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