The discussion of FIFO and LIFO came up in my tutorial when we were reviewing the accounting lecture week.
Just a brief explanation of what they are. FIFO and LIFO are accounting methods and stand for first in first out and last in first out respectively.
Now it would seem pretty obvious to anyone that a company would want to use FIFO to get rid of old inventory first and keep the new inventory, especially with supermarkets who want to keep their produce fresh. However, it is actually the complete opposite, LIFO is what many companies want to use because if an item is bought and then stored in inventory and the wholesaler’s price rises and you buy some more, then sell the last bought, it seems like you have earned less profit by doing that but the company saves a lot more tax than the profit lost, therefore, companies choose to use LIFO. Especially with energy companies, they don’t have a large inventory anyway so they are always purchasing more and therefore will use LIFO. LIFO is getting so popular and a cheap way of paying less tax that governments are starting to ban it and only allow FIFO as the accounting method.
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