LIFO is an accepted valuation method for GAAP; however, it is not for IFRS. If a switch in financial statements is made to be in compliance with IFRS, it will be necessary to switch inventory valuation over from LIFO to FIFO. FIFO assumes that items first added to inventory are the first items removed from inventory when a sale is made. With this method, it is assumed when valuing inventory, the items on hand are the last ones received so it is reasonable to assign the most recent value to each item when determining inventory value. With LIFO, the items last added to inventory are assumed to be the first items removed from inventory when a sale is made. When using LIFO, you may have items that have been around for years which can make it difficult to accurately value all items in inventory. The impact of the switch will depend on the current economy. If prices of the inventory have inflated then the first items sold are the least expensive which will translate into a lower cost of goods sold, higher profits, and a larger tax liability. If prices of inventory have deflated then the opposite will be true; cost of goods sold will increase, profits will decrease, and the tax liability will be lower. As you can see, a change from LIFO to FIFO can greatly impact the financial statements. The degree of impact will depend on whether the inventory purchase price is increasing or decreasing. You should also consider if you have any other financial goals besides the switch to IFRS.
Do you want to increase or decrease your cost of goods sold which directly affects your profits? Do you want to increase or decrease your income tax liability? Respond the questions with explanations of why you choose that answer and with examples for your answer.