Abstract
This article analyzes the complexities of measuring inflation in an environment of changing inventory composition. It argues that administrative feasibility, rather than precision, should be the guiding principle for reform in this area. Externally generated indexes of inflation, such as those currently produced by the Bureau of Labor Statistics (BLS), hold the greatest promise for meaningful simplification of last in, first out (LIFO) while continuing to protect taxpayers from inflationary effects on income. Such indexes are readily available and they offer consistent, objective solutions to problems of changing inventory items that otherwise cause administrative uncertainty for taxpayers and the government.
Part I provides an overview of LIFO in the context of inventory accounting. Part II analyzes capital maintenance as a conceptual framework for measuring economic income in an inflationary environment, and places LIFO within that framework. Part III analyzes two basic approaches to implementing LIFO—specific goods and dollar-value—and explores sources of controversy within each approach caused by changes in inventory content. Part IV discusses efforts to simplify LIFO, and suggests further reforms to reduce administrative and compliance burdens while fulfilling the general purpose of the method. Part V provides a concluding perspective on the roles of simplification and precision in this context.
Recommended Citation
Edward A. Morse,
Demystifying LIFO: Towards Simplification of Inflation-Adjusted Inventory Valuation,
2 Fla. Tax Rev.
(1995).
Available at: https://scholarship.law.ufl.edu/ftr/vol2/iss1/13