Question

Best Care Company began operations on January 1, 2017, and uses the FIFO method in costing its raw material inventory. Management changed the inventory valuation method to the LIFO method in 2018. Corporate accounting staff has determined what effect such a change will have on net income. The Tax Rate is 40% for all years. Accordingly, the following information has been developed 2017 2018 Net Income (computed under the FIFO method $500,000 $750,000 Ending Inventory under FIFO method $320,000 $400,000 Ending Inventory under LIFO method $200,000 $ 300,000

Based upon the above information, a change to the LIFO method in 2018 would result in adjustment of beginning balance of inventory as of 1/1/2018 in the amount of

Based upon the above information, a change to the LIFO method in 2018 would result adjustment of beginning balance of deferred tax as of 1/1/2018 in the amount of

Answer 1

	FIFO		LIFO
	2017	2018	2017	2018
Net Income	5,00,000.00	7,50,000.00
Inventory	3,20,000.00	4,00,000.00	2,00,000.00	3,00,000.00
Increase in Closing inventory in 2017 by 120,000, Tax of 48,000/- has been paid more
Decrease in inventory in 2017		(3,20,000-2,00,000)	1,20,000.00
Increase in income as per FIFO			1,20,000.00
Increase in Tax			48,000.00
Change in Inventory		Decrease	1,20,000.00
Change in deferred tax		Decrease	48,000.00
Change in Net Income 2017		Decrease	3,80,000.00
Change in Net Income 2018		Increase	20,000.00	(7,50,000-1,00,000+1,20,000)