Since with FIFO taxes are bound to increase, also the stocks will always remain mismanaged.
And with LIFO taking a loan will put the company in debt. Inflation increases interest rates, hence a vulnerable time to be taking a loan. Apart from that, with LIFO new income is lowered, the company might not be able to re-pay the loan at all.
With the weighted average the company is safe, its not leaning towards either end, the prices will fall in the middle ensuring a steady flow of income on each product.
Mr. blue is wright because under LIFO method cost of goods sold will be highest thus
lower tax margins which will increase the cash in flow. and then the company can
borrow more money of basis of more cash inflow.
and MR. white is saying FIFO will lower the taxable income, but FIFO increases the
taxable income as it increases the net income, so more income = more taxes
as FIFO is concerned, but we have to answer if Mr White and Mr Blue is right or wrong.
In my opinion both are wrong. In context of FIFO you have already mentioned the
correct answer and in case of LIFO answer , our aim/ mandate is not to get loan
from bank but to suggest appropriate answer for the company. By getting loan we
are increasing the problem of company and especially in context of inflation.
The old inventory will get more
effect of inflation. So my conclusion is that both have given wrong answers to company.
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