Inventory accounting switch and uncertainty
Article Abstract:
Companies that want to switch from the last in-first out (LIFO) accounting method to the first in-last out (FIFO) method generally must have the switch approved by the IRS Commissioner and pay a tax penalty while companies wishing to switch from FIFO to LIFO can do so at low cost. Research was conducted comparing the economic attributes of FIFO firms that adopted LIFO between 1969-1980 to continuous FIFO users. There is some evidence that current tax savings from LIFO are higher than in the surrounding four years of firms that switch, but uncertainty about future tax savings reduces the probability of a switch to LIFO. Research results reveal that current tax savings have more impact on a switch decision than the present value of future tax savings, indicating that optimal tax benefits can be achieved by foregoing LIFO tax savings when the company is faced by an uncertain economic environment.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1989
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Dynamic analysis of inventory accounting choice
Article Abstract:
A dynamic model of inventory accounting choice sufficiently restricted to generate a static, cross-sectional model can be used for systematic considerations of choice over time. Research using the model to develop and test a Markov chain model of the process of inventory method change indicates that factor prices play a significant role in accounting choice, as do gross national product changes, size, and industry membership. Last in, first out accounting methods cause large companies to change accounting methods because of benefits accrued from economies of scale. However, the lower costs of first in-first out accounting methods may negate the cost benefits of a change.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1989
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New evidence on LIFO adoptions: the effects of more precise event dates
Article Abstract:
Firms which switch to the last-in-first-out method of inventory accounting experience a rise in the value of their stock. The stock market perceives this change as a good move. Proof is available, especially in average residual return and association measures. Other affected areas are tax savings, unexpected quarterly earnings, and unexpected annual earnings.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1987
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