Question

. Should an automobile dealer be allowed to either use LIFO or FIFO to compute income...

. Should an automobile dealer be allowed to either use LIFO or FIFO to compute income from sales of automobiles or must the dealer use the specific identification method? Explain.

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Answer #1

Many automobile dealers choose LIFO method because he gets more benefits because of using the LIFO method:

  • For matching inventory costs to revenue,
  • There will be reduction of income tax liability which may defer for future
  • Can minimize write-downs of vehicles with comparison of fair value because of decline in inventory costs.

The major reason LIFO calculations are so popular in the automotive industry is due to consistently increasing costs of vehicles, for which LIFO provide the dealership with significant income tax benefits.

I hope this will help you.

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