LIFO Liquidation


DEFINITION of 'LIFO Liquidation'

When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their older LIFO inventory. A LIFO liquidation would occur if current sales are higher than current purchases, as a result, any inventory not sold in previous periods must be liquidated.


Due to inflation and general price rises, the amount a company pays for its inventory will usually increase with time. If a company decides to perform a LIFO liquidation, the old costs will be matched with the current higher sales prices. Thus, a cost to using the LIFO liquidation method is higher tax liability if prices have risen since LIFO was adopted. The expected tax advantage of LIFO tunrs into a disadvantage because older, lower costs (of older inventory) are matched with current revenues. Another cost may be lost sales.

  1. Inflation

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  2. Voluntary Liquidation

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  3. Last In, First Out - LIFO

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  4. Inventory

    The raw materials, work-in-process goods and completely finished ...
  5. Net Income - NI

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  6. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
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