Answer
When prices are increasing, the utilization of fewer pools (under the LIFO methodology) contributes to monumental income tax benefits for entities. Consequently, fewer pools allow entities to offset the increasing inventories and reductions of other items. Comparatively, falling prices necessitate the utilization of more pools, which means that old layers of inventory (which are mostly low-cost) are liquidated, resulting in adverse tax implications.
Work Step by Step
When prices are increasing, the utilization of fewer pools (under the LIFO methodology) contributes to monumental income tax benefits for entities. Consequently, fewer pools allow entities to offset the increasing inventories and reductions of other items. Comparatively, falling prices necessitate the utilization of more pools, which means that old layers of inventory (which are mostly low-cost) are liquidated, resulting in adverse tax implications.
