[SJR]

In relation to stock control which would you choose for a petrol station business where the stock purchase and selling prices fluctuate regularly and why?

[AdamUTsel]

FIFO is currently the standard for inventory accounting. This is because dollars on the books are added and subtracted simultaneously with the physical material that those dollars represent. The FIFO method is also chosen because it is easier for firms with fluctuating production cost to determine their cost of goods sold and to price their products. However, since FIFO does produce a higher reported income, a firm is required to pay taxes on a higher dollar amount. The tax benefit that LIFO can offer, by providing a lower reported income, does shed some light on why certain firms would gladly make a switch from FIFO to LIFO. With the higher reported income FIFO provides the law states that a company must acquire more insurance, which mean higher premiums for that insurance. All of these reasons lead some managers to take a closer look into the LIFO method of inventory accounting.