In "Take a Second Look at LIFO" (Taxes, May), Mr. Merry states that LIFO uses the cost of the last item placed in stock to value inventory and that the resultant higher-cost inventory reduces taxable income. In fact, the LIFO method of valuing inventory uses the cost of the first item placed in stock, which effectively matches the cost of the most recent purchases against current sales. Thus, LIFO results in a lower cost inventory, which reduces taxable income. The effects of LIFO in decreasing income taxes and increasing cash flow are correct, but the article presented an incorrect analysis of inventory valuation using LIFO.
Jul 1, 1982